Question

At the beginning of the current year, Skeeba Manufacturing borrowed $10 million to be repaid over the next five calendar quarters with quarterly payments of $2,090,893.23 based on a fixed annual interest rate of 6.0%. Concerned those variable interest rates would be lower than the 6.0% fixed interest rate, on March 31 Skeeba secured an interest rate swap whereby it would receive a 6.0% fixed rate of interest in exchange for the payment of a variable rate. The notional amount of the swap is $10 million, and the maturity date of the swap matches the maturity date of the original borrowing.
Reset dates are March 31, June 30, September 30, and December 31, with variable rates for the next quarter of 5.8%, 5.5%, 5.6%, and 5.4%, respectively. Assumed fair values of the swap are $14,954, $6,037, and $3,049, as of June 30, September 30, and December 31, respectively.
Determine the basis of the 6% note payable on June 30, September 30, and December 31 along with the interest expense for each of those calendar quarters.


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  • CreatedApril 13, 2015
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