Grocery Corporation sold $500,000, 7 percent notes on January 1, 2017, at a market rate of 8

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Grocery Corporation sold $500,000, 7 percent notes on January 1, 2017, at a market rate of 8 percent. The notes were dated January 1, 2017, with interest to be paid each December 31; they mature 10 years from January 1, 2017. 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 2017.

Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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Financial Accounting

ISBN: 978-1259105692

6th Canadian edition

Authors: Robert Libby, Patricia Libby, Daniel G Short, George Kanaan, Maureen Sterling

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