A 2% loan was granted to Pegasus Technology Limited. The principal amount was \($750,000\) and the term was three years. Interest is paid at the end of each year. In addition, the lender charged an upfront fee of \($61,273\) for processing the loan application and filing necessary paperwork. Pegasus plans to expense this as a miscellaneous bank charge. Management was delighted to get a 2% loan, because other financial institutions had bid a much higher interest rate for the same terms and security.

Required:

1. Did Pegasus get a 2% loan? Explain, and calculate the effective interest rate associated with the loan.

2. What is the appropriate accounting treatment of the upfront fee? When is it expensed?

3. Give the required entries for Pegasus over the life of the loan.