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On January 3, 20X4, Realto Company issued a $5,400,000, 3-year note payable with a fixed interest rate of 8% payable semiannually.
On January 3, 20X4, Realto Company issued a $5,400,000, 3-year note payable with a fixed interest rate of 8% payable semiannually. By the end of June 20X5, Realto's controller, believed that interest rate would fall over the next year. On July 3, 20X5, Realto Company entered into an interest rate swap with the First Columbia Bank. The bank required a premium of 10,400. The swap had a notional amount of $5,400,000 and called for the payment of a variable interest rate in exchange for the 8% fixed rate. The variable rates are reset semiannually beginning on July 1, 20X5, in order to determine the next interest payment. Differences between rates on the swap will be settled on a semiannual basis. Variable interest rates and the value of the swap on selected dates are as follows:07/01 variable interest - 7.90%value of swap 12/31 variable interest - 7.60%Value of swap - $18,90006/30variable interest - 7.35%Value of swap - $16,200For December 31, 20X5, determine:a.The net interest expense.
