Texas Company has a $4,000,000, 8% bank loan from James Bank. On January 1, 2017, the bank loan has three years to maturity. Texas enters into a three-year interest rate swap with Black and White Investments with a $4 million notional amount. The agreement calls for Texas to receive a fixed interest rate of 8% and pay a variable rate based on LIBOR at the beginning of the year. Payments to Black and White are to be made for the net amount at each year-end. At the beginning of 2017, the LIBOR rate is 7.5%. The three-year fixed rate at the end of 2017 is
9%.
Required:
Prepare the journal entries that Texas would make in 2017 relating to the bank loan and the derivative.

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The Answer of Texas Company has a $4,000,000, 8% bank loan from James Bank. On January 1, 2017, the bank loan has three years to maturity. Texas enters into a three-year interest rate swap with Black and White Investments with a $4 million notional amount. The agreement calls for Texas to receive a fixed interest rate of 8% and pay a variable rate based on LIBOR at the beginning of the year. Payments to Black and White are to be made for the net amount at each year-end. At the beginning of 2017, the LIBOR rate is 7.5%. The three-year fixed rate at the end of 2017 is
9%.
Required:
Prepare the journal entries that Texas would make in 2017 relating to the bank loan and the derivative.

Texas Company Has a $4,000,000, 8% Bank Loan from James