Grocery Corporation sold \(\$ 500,000,11\) percent notes on January 1,2011, at a market rate of 8 percent. The notes were dated January 1, 2011, with interest to be paid each December 31; they mature 10 years from January 1, 2011. Use effective interest amortization.

\section*{Required:}

1. How are the financial statements affected by the issuance of the notes? Describe the impact on the financial leverage 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 financial leverage and times interest earned ratios, if any.

3. Show how the interest expense, interest payment, and the notes payable should be reported on the financial statements for 2011.