| On December 31, 2020, Sarasota Corp. had a $10,900,000, 8.0% fixed-rate note outstanding, payable in 2 years. It decides to enter into a 2-year swap with Chicago First Bank to convert the fixed-rate debt to variable-rate debt. The terms of the swap indicate that Sarasota will receive interest at a fixed rate of 8.0% and will pay a variable rate equal to the 6-month LIBOR rate, based on the $10,900,000 amount. The LIBOR rate on December 31, 2020, is 7.0%. The LIBOR rate will be reset every 6 months and will be used to determine the variable rate to be paid for the following 6-month period. Sarasota Corp. designates the swap as a fair value hedge. Assume that the hedging relationship meets all the conditions necessary for hedge accounting. The 6-month LIBOR rate and the swap and debt fair values are as follows. | Date | | 6-Month LIBOR Rate | | Swap Fair Value | | Debt Fair Value | | December 31, 2020 | | 7.0 | % | | | | | $10,900,000 | | June 30, 2021 | | 7.5 | % | | (194,600 | ) | | 10,705,400 | | December 31, 2021 | | 6.0 | % | | 55,540 | | | 10,955,540 | |
