Newman Corp. issued a $5 million, 6-year note on January 2, 2019. Interest was to be paid annually and based on LIBOR (London Interbank Offered Rate). Newman was worried that if LIBOR unexpectedly rose substantially, the company might not be able to pay interest on the note in full. To hedge against the cash flow uncertainty, Newman entered into an interest rate swap to pay 5% fixed and receive LIBOR based on $5 million for the term of the note. The

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LIBOR rate for the first year (2019) was 5.7%. The LIBOR rate was reset to 4.6% on January 2, 2020. Newman followed IFRS and used hedge accounting. On December 31, 2019, the fair value of the swap increased by $13,500: it decreased by $6,500 on December 31, 2020.

(1) Prepare the journal entries relating to interest expense on the note for the years ended

December 31, 2019 and 2020.

(2) Calculate the net interest expense to be reported for this note and related swap transactions as

at December 31, 2019 and 2020.

(3) Prepare the journal entries required for the swap at the ends of 2019 and 2020.