Question

On December 31, 2020, Flint Corp. had a $10,500,000, 9.0% 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 Flint will receive interest at a fixed rate of 9.0% and will pay a variable rate equal to the 6-month LIBOR rate, based on the $10,500,000 amount. The LIBOR rate on December 31, 2020, is 8.0%. 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.

The question is:

Indicate the amount(s) reported on the balance sheet and income statement related to the debt and swap on December 31, 2021.?

Flint 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		8.0	%					$10,500,000
June 30, 2021		8.5	%		(199,400	)		10,300,600
December 31, 2021		7.0	%		55,900			10,555,900

Answer 1