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12. Using the information in MC 11, what amount will Camry report as fair value of the interest rate swap on December 31, 2011? a. 500,000 b. 10,000 O c. 9,259 O d. 9,091

12. Using the information in MC 11, what amount will Camry report as fair value of the interest rate swap on December 31, 2011? a. 500,000 b. 10,000 O c. 9,259 O d. 9,091

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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11. On January 1, 2011, Camry Company received a two-year P500,000 loan. The loan calls for interest payments to be made at the end of each year based on the prevailing market rate at January 1 of each year. The interest rate at January 1, 2011 was 10%. Fortuner Company also has a two-year P500,000 loan but Fortuner's loan carries a fixed interest rate of 10%. Camry Company does not want to bear the risk that interest rates may increase in the second year of the loan. Fortuner Company believes that rates may decrease and it would prefer to have variable debt. So the two entities enter into an interest rate swap agreement whereby Fortuner agrees to make Camry's interest payment in 2012 and Camry likewise agrees to make Fortuner's interest payment in 2012. The two entities agree to make settlement payments, for the difference only, on December 31, 2012. If the interest rate on January 1, 2012 is 8%, what will be Camry's settlement with Fortuner? a. 10,000 payment O b. 10,000 receipt O c. 5,000 payment O d. 5,000 receipt
Transcribed Image Text:11. On January 1, 2011, Camry Company received a two-year P500,000 loan. The loan calls for interest payments to be made at the end of each year based on the prevailing market rate at January 1 of each year. The interest rate at January 1, 2011 was 10%. Fortuner Company also has a two-year P500,000 loan but Fortuner's loan carries a fixed interest rate of 10%. Camry Company does not want to bear the risk that interest rates may increase in the second year of the loan. Fortuner Company believes that rates may decrease and it would prefer to have variable debt. So the two entities enter into an interest rate swap agreement whereby Fortuner agrees to make Camry's interest payment in 2012 and Camry likewise agrees to make Fortuner's interest payment in 2012. The two entities agree to make settlement payments, for the difference only, on December 31, 2012. If the interest rate on January 1, 2012 is 8%, what will be Camry's settlement with Fortuner? a. 10,000 payment O b. 10,000 receipt O c. 5,000 payment O d. 5,000 receipt
12. Using the information in MC 11, what amount will Camry report as fair value of the interest rate swap on December 31, 2011? O a. 500,000 O b. 10,000 O c. 9,259 O d. 9,091
Transcribed Image Text:12. Using the information in MC 11, what amount will Camry report as fair value of the interest rate swap on December 31, 2011? O a. 500,000 O b. 10,000 O c. 9,259 O d. 9,091
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