Michaela DiNicola
Case # 3
1. The type of hedge that Spartan would need to designate is the fair value hedge.
2. According to ASC 815, Deriva$ves and Hedging Ac$vi$es the following list correctly
shows what Spartan would need and document to make sure that the interest swaps
achieve hedge accounting:
a. “All interest payments on the variable-rate debt during the term of the interest
rate swap are designated as hedged.” The purpose is to “economically convert a
variable-rate borrowing to a xed-rate borrowing and the payment dates for
both instruments are the same”
b. “All interest payments occurring on the borrowing during the term of the swap or
the eec ve term of the swap underlying the forward star ng swap are
designated as hedged whether in total or in propor on to the principal amount
of the borrowing being hedged”
c. “Both the variable rate on the swap and the borrowing are based on the same
index and reset period. (both the swap and the borrowing are based on three-
month LIBOR). In complying with this condi on, an en ty is not limited to
benchmark interest rates described in 815-20-25-6A.”
