Pharoah Company commonly issues long-term notes payable to its various lenders. Pharoah has had a pretty good credit rating such that its effective borrowing rate is quite low (less than 8% on an annual basis). Pharoah has elected to use the fair value option for the long-term notes issued to Barclays Bank and has the following data related to the carrying and fair value for these notes. Any changes in fair value are due to changes in market rates, not credit risk.

Date Carrying Value Fair Value

December 31, 2017 $55,800 $55,800

December 31, 2018 46,500 44,900

December 31, 2019 37,400 39,500

1. Prepare the journal entry at December 31 (Pharoahs year-end) for 2017, 2018, and 2019, to record the fair value option for these notes.
2. At what amount will the note be reported on Pharoahs 2018 balance sheet?
3. What is the effect of recording the fair value option on these notes on Pharoahs 2019 income?