Dynamic Manufacturing borrows $$200,000$ on a $2-$year note from the bank at a fixed rate of $7\%$ on January $1,20$X$0,$ with interest payable annually on December $31.$ Dynamic anticipates decreases in borrowing rates over the next year so the company enters into an interest rate swap agreement with Brown Financial Group on January $2,20$X$0.$ Under the agreement, Dynamic agrees to pay interest at LIBOR $+3\%$ during the two year term of the note. Brown agrees to pay the fixed $7\%$ rate.

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The first cash settlement of the swap occurs on December $31,20$X$0.$ At that date, LIBOR was $3(1)/(2)\%.$ The estimated fair value of the swap is $$2,000$ and the estimated fair value of the note payable is $$202,000.$

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At what amount should Dynamic report the note payable on their December $31,20$X$0$ balance sheet?

Question $4$ options:

$$200,000$

$$0$

$$201,000$

$$202,000$