Shonen Knife Corporation has elected to use the fair value option for one of its notes payable. The note was issued at an effective rate of 11% and has a carrying value of $16,000. At year-end, Shonen Knife’s borrowing rate has declined; the fair value of the note payable is now $17,500.
(a) Determine the unrealized holding gain or loss on the note.
(b) Prepare the entry to record any unrealized holding gain or loss.