On January 2, 2014, Parton Company issues a 5-year, $11,162,000note at LIBOR, with interest paid annually. The variable rate isreset at the end of each year. The LIBOR rate for the first year is6.6%.
Parton Company decides it prefers fixed-rate financing and wants tolock in a rate of 7%. As a result, Parton enters into an interestrate swap to pay 7% fixed and receive LIBOR based on $11,162,000.The variable rate is reset to 7.6% on January 2, 2015.
(a) Compute the net interest expense to bereported for this note and related swap transactions as of December 31, 2014.
(b) Compute the net interest expense to bereported for this note and related swap transactions as of December 31, 2015.