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A company has $1,000,000 in variable rate debt, with interest due on December 31 of each year. Interest is set at the Treasury bill rate plus 1.2%. The principal of the loan is due December 31, 2021. On January 1, 2020, the company enters a two-year receive variable/pay fixed interest rate swap, at a fixed rate of 2.2%. The swap is settled at the end of each year. The Treasury bill rate for 2020 is 0.8%, and it is 0.7% in 2021. The company records the swap at the expected future receipts/payments, equal to the receipt/payment for the current year, discounted at the variable rate. The swap qualifies as a cash flow hedge of the variable interest payments, and income effects of the debt and the swap are reported in interest expense.
-At the end of 2020, the company adjusts the swap to its current value. The effect on other comprehensive income is a

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The new payment is (2.2% - 1.9%) = $3,000 due at the end of the year, discounted at 1.9%. $3,000/1.019 = $2,944 liability. The swap has a current liability balance of $3,883 - $2,000 = $1,883. The adjustment increases the liability by ($2,944 - $1,883) = $1,061, reducing other comprehensive income.

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