*E17-24B (Cash Flow Hedge) On January 1, 2014, NorthLake Office Services issues a 10-year, $1,000,000 note at LIBOR plus 1%, with interest paid annually. The variable rate is reset at the end of each year. The LIBOR rate for the first year is 5.2%. NorthL

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*E17-24B (Cash Flow Hedge) On January 1, 2014, NorthLake Office Services issues a 10-year, $1,000,000 note at LIBOR plus 1%, with interest paid annually. The variable rate is reset at the end of each year. The LIBOR rate for the first year is 5.2%.
NorthLake decides it prefers fixed-rate financing and wants to lock in a rate of 7%. As a result, North- Lake enters into an interest rate swap to pay 7% fixed and receive LIBOR plus 1% based on $1 million. LIBOR increases to 5.9% on January 1, 2015.
Instructions
(a) Compute the net interest expense to be reported for this note and related swap transactions as of December 31, 2014.
(b) Compute the net interest expense to be reported for this note and related swap transactions as of December 31, 2015.

    • 10 years ago
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