Below market interest note:

On January 1, Investor purchased a 9 year, $400,000; 4% note from Borrower. The yield

(market interest rate) at the time of issuance was 9%, compounded annually.

For Investor:

1. Record the journal necessary on January 1

2. Record the journal entry necessary on December 31.

(Assuming no additional entries were made since January 1)

3. Record the journal necessary on the following January 1.

For Borrower:

4. Record the journal necessary on January 1.