Millikin Corporation decided to hedge two transactions. The first transaction is a forecasted transaction to buy 500
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In another transaction, the company borrowed $3,000,000 at a fixed rate of 8%; after three months, the company became concerned that variable rates would be lower than 8%. In response, the company entered into an interest rate swap whereby it paid variable rates to counterparty in exchange for a fixed rate of 8%. The reset rate for the first 30 days of the swap was 8.1% and was 7.8% for the second 30 days of the swap. The fair value of the swap was $3,000 after the first 30 days and $3,300 after 60 days.
Required
Determine the impact on earnings of the above hedges for the first and second 30-day period.
Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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Advanced Accounting
ISBN: 978-0538480284
11th edition
Authors: Paul M. Fischer, William J. Tayler, Rita H. Cheng
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