# On January 2, 2018, Tylor Company issued a 4-year, $600,000 note at 8% fixed interest, interest... ## Question: On January 2, 2018, Tylor Company issued a 4-year,$600,000 note at 8% fixed interest, interest payable semiannually. Tylor now wants to change the note to a variable rate note. As a result, on January 2, 2018, Tylor Company enters into an interest rate swap where it agrees to receive 8% fixed and pay LIBOR of 5.7% for the first 6 months on $600,000. At each 6-month period, the variable interest rate will be reset. The variable rate is reset to 6.5% on June 30, 2018. 1. Compute the net interest expense to be reported for this note and related swap transaction as of June 30, 2018. 2. Compute the net interest expense to be reported for this note and related swap transaction as of December 31, 2018. ## Interest Expenses: The cost born by the company in taking the fund or borrowing the fund is known as the interest expenses. The companies pay interest on the borrowed fund and that interest is interest expenses. ## Answer and Explanation:  Fixed Rate Debt$600,000 $600,000 Fixed Rate (8%/2) 4% 4% Semiannual debt Payment$24,000 $24,000 Swap Fixed Receipt$24,000 $24,000 Net Income Effect$0 $0 Swap Variable Rate 5.7% x 1/2 x$600,000 $17,100 6.5% x 1/2 x$600,000 $19,500 Net Interest Expense$17,100 \$19,500 