Question
On January 2, 2017, Reese Company issued a 5-year, $8,000,000 note at LIBOR with interest paid annually. The variable rate is reset at the end
On January 2, 2017, Reese Company issued a 5-year, $8,000,000 note at LIBOR with interest paid annually. The variable rate is reset at the end of each year. The LIBOR rate for the first year is 6.8%. Reese Company decides it prefers fixed-rate financing and wants to lock in a rate of 6%. As a result, Reese enters into an interest rate swap to pay 7% fixed and receive LIBOR based on $8 million. The variable rate is reset to 7.4% on January 2, 2018. What amount of net interest expense would Reese report on its December 31, 2017 income statement? a. 0. b. 544,000 c.560,000 d. 592,000.
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