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Question(s) / Instruction(s):

*Ex. 17-112—Fair value hedge.
On January 2, 2007, Nolan Co. issued a 4-year, $500,000 note at 6% fixed interest, interest payable semiannually. Nolan now wants to change the note to a variable rate note. As a result, on January 2, 2007, Nolan Co. enters into an interest rate swap where it agrees to receive 6% fixed and pay LIBOR of 5.6% for the first 6 months on $500,000. At each 6-month period, the variable interest rate will be reset. The variable rate is reset to 6.6% on June 30, 2007.

Instructions
(a)     Compute the net interest expense to be reported for this note and related swap transaction as of June 30, 2007.
(b)     Compute the net interest expense to be reported for this note and related swap transaction as of December 31, 2007.

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