Question

On January 1, 2019 Panther Company received a two-year $600,000 loan. The loan calls for payments...

On January 1, 2019 Panther Company received a two-year $600,000 loan. The loan calls for payments to be made at the end of each year based on the prevailing market rate at January 1 of each year. The interest rate at January 1, 2019 was 10 percent. Panther company does not want to bear the risk that interest rates may increase in year two of the loan. Aegan company believes that rates ma decrease and they would prefer to have ha varible debt. So the two companies enter into an interest rate swap agreement whereby Aegan agrees to make panther interest payment in 2020 and panther likewise agree to make Aegans interest payment in 2020. The two companies agree to make settlement payments for the difference only on December 31 2020. If the interest rate on Jan 1 2019 is 9 percent what will be panther settlement payment to/from Aegan on December 31, 2020. r
percent.

A 6,000 receipt

B 6,000 payment

C12,000 payment

D12,000 receipt

Homework Answers

Answer #1

C. $ 12,000 Payment

Loan Amount = $ 6,00,000

Period of loan (January 1,2019 to Deceember 31,2020) = 2 years

Interest for 2 years = $ 6,00,000 * 10% * 2 = $ 1,20,000

Interest swap agreement was entered in order to safeguard against increase in interest rate. But actual interest rate turns out to be 9 %. i.e., Decreased. Therefore Panther company need to bear the loss.

Interest for 2 years at the rate of 9% = $ 6,00,000* 9% * 2 = $ 1,08,000

Net payment to be made = $ 1,20,000 - $ 1,08,000

= $ 12,000

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
On January 1, 2019, ABC Company borrowed $120,000 from the bank. The loan is a 7-year...
On January 1, 2019, ABC Company borrowed $120,000 from the bank. The loan is a 7-year note payable that requires annual payments of $24,500 every December 31, beginning December 31, 2019. Assume the loan has an interest rate of 10% compounded annually. Calculate the balance in the note payable account at December 31, 2020.
On January 1, 2019, ABC Company borrowed $120,000 from the bank. The loan is a 7-year...
On January 1, 2019, ABC Company borrowed $120,000 from the bank. The loan is a 7-year note payable that requires annual payments of $24,500 every December 31, beginning December 31, 2019. Assume the loan has an interest rate of 10% compounded annually. Calculate the amount of the note payable at December 31, 2020 that would be classified as a current liability.
On January 1, 2019, ABC Company borrowed $100,000 from the bank. The loan is a 15-year...
On January 1, 2019, ABC Company borrowed $100,000 from the bank. The loan is a 15-year note payable that requires annual payments of $13,000 every December 31, beginning December 31, 2019. Assume the loan has an interest rate of 10% compounded annually. Calculate the amount of the note payable at December 31, 2021 that would be classified as a current liability.
A company with a fiscal year ending on December 31 borrowed money with an installment loan...
A company with a fiscal year ending on December 31 borrowed money with an installment loan of $500,000 on January 1, 2017. The loan agreement requires the company to make five equal annual payments that will fully amortize the loan in exactly five years. The first payment on the loan was made December 31, 2017 and the annual interest rate associated with the loan was 8 percent. After the December 31, 2019 payment is made, the amount of the liability...
On January 1, 2020, ABC Company borrowed $200,000 from the bank. The loan is a 10-year...
On January 1, 2020, ABC Company borrowed $200,000 from the bank. The loan is a 10-year note payable that requires semi-annual payments of $24,000 every June 30 and December 31, beginning June 30, 2020. Assume the loan has a 20% interest rate, compounded semi-annually. Calculate the amount of the note payable at December 31, 2020 that would be classified as a long-term liability.
On January 1, 2019, Tonika Company issued a six-year, $10,000, 6% bond. The interest is payable...
On January 1, 2019, Tonika Company issued a six-year, $10,000, 6% bond. The interest is payable annually each December 31. The issue price was $9,523 based on an 7% effective interest rate. Tonika uses the effective-interest amortization method. The December 31, 2020 book value after the December 31, 2020 interest payment was made is closest to: A) $9590 B) $9519 C) $9523 D) $9661
Ajax Company manufactures equipment that they sell or lease. On January 1, 2019, Ajax leased equipment...
Ajax Company manufactures equipment that they sell or lease. On January 1, 2019, Ajax leased equipment to Comet Company for a five-year period after which ownership of the leased asset will be transferred to Comet. The lease calls for equal annual payments of $50,000. The first payment is due on January 1, 2019. Thereafter, the payments are due on December 31st of each year with the second payment due on December 31, 2019. The equipment cost Ajax $176,000 to produce....
Moderate Bank granted a loan to a borrower on January 1, 2019. The interest on the...
Moderate Bank granted a loan to a borrower on January 1, 2019. The interest on the loan is 10% payable annually starting December 31, 2019. The loan matures in three years on December 31, 2021. After considering the origination fee received from the borrower and the direct origination cost incurred, the effective rate on the loan is 12%. Principal amount 5,000,000 Direct origination cost incurred 100,000 Origination fee received from the borrower 340,000 Indirect origination cost incurred 50,000 What is...
On April 1, 2020, Mendoza Company (a U.S.-based company) borrowed 508,000 euros for one year at...
On April 1, 2020, Mendoza Company (a U.S.-based company) borrowed 508,000 euros for one year at an interest rate of 5 percent per annum. Mendoza must make its first interest payment on the loan on October 1, 2020, and will make a second interest payment on March 31, 2021, when the loan is repaid. Mendoza prepares U.S. dollar financial statements and has a December 31 year-end. Prepare all journal entries related to this foreign currency borrowing assuming the following exchange...
Sunland Company borrowed $1650000 from BankTwo on January 1, 2019 in order to expand its mining...
Sunland Company borrowed $1650000 from BankTwo on January 1, 2019 in order to expand its mining capabilities. The 5-year note required annual payments of $429720 and carried an annual interest rate of 9.5%. What is the balance in the notes payable account at December 31, 2020 after the annual payment?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT