On January 2, 2017, Pharoah Co. issued a 4-year, $126,000 note at 6% fixed interest, interest payable semiannually. Pharoah now wants to change the note to a variable-rate note. As a result, on January 2, 2017, Pharoah Co. enters into an interest rate swap where it agrees to receive 6% fixed and pay LIBOR of 5.80% for the first 6 months on $126,000. At each 6-month period, the variable rate will be reset. The variable rate is reset to 6.70% on June 30, 2017. (a) Compute the net interest expense to be reported for this note and related swap transaction as of June 30, 2017.
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