Delta Company issues 10,000,000 variable-rate debt at par with a coupon rate of 6% on 1/1/X1 that pays interest quarterly and enters into an interest-rate swap that is used to hedge the debt to produce fixed-rate debt. The swap has a fair value of zero initially. The swap resets each quarter on the last day of the quarter and is perfectly effective. At 12/31/X1 the variable rate changes to 6.5%, which will cause a change in fair value of the derivative.

Prepare any journal entries for 12/31/X1 & prepare any journal entries for 3/31/X2.

	6.00%		Swap	Change
Date	Interest paid	Fair value debt	Fair value	fair values	Net cash
12/31/X1	$150,000	$10,000,000	$174,900	$174,900	$0
3/31/X2	$162,500	$10,000,000	$165,200	($9,700)	$12,500