Sunny Corporation has $1,000,000 in fixed rate debt, with an annual interest rate of 3%, and interest payments due June 30 and December 31 of each year. On January 1, 2016, it entered a receive fixed/pay variable interest rate swap, where the variable rate is LIBOR plus 20 bp. On January 1, 2016, LIBOR is 1.6%. On June 30, 2016, LIBOR declines to 1.2% and causes the variable rate to be reset at that time. The swap qualifies for hedge accounting.

Suppose the swap contract changed in value by $60,000 as of June 30, 2016. How does Sunny record this change in value?

Gain reported in income

Loss reported in income

Loss reported in OCI

Not recorded

Sunny Corporation has $1,000,000 in fixed rate debt, with an annual interest rate of 3%, and interest payments due June 30 and December 31 of each year. On January 1, 2016, it entered a receive fixed/pay variable interest rate swap, where the variable rate is LIBOR plus 20 bp. On January 1, 2016, LIBOR is 1.6%. On June 30, 2016, LIBOR declines to 1.2% and causes the variable rate to be reset at that time. The swap qualifies for hedge accounting.

Suppose the fixed rate debt changed in value by $80,000 as of June 30, 2016. How does Sunny record this change in value?

Gain reported in income

Loss reported in income

Loss reported in OCI

Not recorded

Sunny Corporation has $1,000,000 in fixed rate debt, with an annual interest rate of 3%, and interest payments due June 30 and December 31 of each year. On January 1, 2016, it entered a receive fixed/pay variable interest rate swap, where the variable rate is LIBOR plus 20 bp. On January 1, 2016, LIBOR is 1.6%. On June 30, 2016, LIBOR declines to 1.2% and causes the variable rate to be reset at that time. The swap qualifies for hedge accounting.

Suppose the same facts as above, except Sunny Corporation has variable rate debt, with interest payments at LIBOR plus 20 bp, and enters a receive variable/pay fixed interest rate swap, with the annual fixed rate set at 3%. The swap changed in value by $2200,000 as of June 30, 2016. How does Sunny record this change in value?

Gain reported in income

Loss reported in income

Loss reported in OCI

Not recorded

Answer rating: 100% (QA)

What Is an Interest Rate Swap An interest rate swap is a forward contract in which one stream of future interest payments is exchanged for another based on a specified principal amount Interest rate s... View the full answer