Chamandy Corporation issued a $ 25,000,000, 7 percent note on July 1, 2015, at a market rate of 6 percent. The note was dated July 1, 2015, with interest to be paid each June 30. The note matures in 10 years. The company’s fiscal year ends on December 31.
Required:
1. How are the financial statements affected by the issuance of the note? Describe the impact on the debt- to- equity and the times interest earned ratios, if any.
2. How are the financial statements affected by the payment of interest on June 30, 2015? Describe the impact on the debt- to- equity and the times interest earned ratios, if any.
3. Show how the interest expense and the note payable should be reported on the December 31, 2015, annual financial statements. Use the straight- line method to amortize any discount or premium.