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.