Boston Company agreed to loan New York Corp. funds for expansion. On January 1, 2012 Boston loaned ____(a)_______ to New York, and accepted an 7% coupon rate Note, with interest received annually. New York agreed to repay $1,000,000 face amount 5 years from January 1, 2012. Boston expects to hold the Note to maturity.

New York was also granted the right to prepay the Note early after two years, but if it did so, it would have to pay 102% of face value upon repayment.

The market rate of interest for comparable loans is 12% on January 1, 2012.

a. What was the initial amount received by New York on January 1, 2012?

b. What was New Yorks INTEREST EXPENSE for 2013 (YEAR 2)?

c. What was Bostons INTEREST RECEIVABLE for 2014 (YEAR 3)?

d. Because market interest rates declined to 10%, New York decided it was in its best interest to prepay the loan at the end of 2014 (Year 3). FOR BOSTONs FINANCIAL STATEMENTS, prepare the journal entry to record the prepayment of the loan at the end of 2014 (YEAR 3).