Grocery Corporation sold 500 000 7 percent notes on January
Grocery Corporation sold $ 500,000, 7 percent notes on January 1, 2014, at a market rate of 8 percent. The notes were dated January 1, 2014, with interest to be paid each December 31; they mature 10 years from January 1, 2014. Use effective- interest amortization.
Required:
1. How are the financial statements affected by the issuance of the notes? Describe the impact on the debt- to- equity and times interest earned ratios, if any.
2. How are the financial statements affected by the payment of interest on December 31? Describe the impact on the debt- to- equity and times interest earned ratios, if any.
3. Show how the interest expense, interest payment, and notes payable should be reported on the financial statements for 2014.
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