Harper Company commonly issues long-term notes payable to its various lenders. Harper has had a pretty good credit rating such that its effective borrowing rate is quite low (less than 8% on an annual basis). Harper has elected to use the fair value option for the long-term notes issued to Barclay's Bank and has the following data related to the carrying and fair value for these notes.
Carrying Value Fair Value
December 31, 2011 $81,000 $81,000
December 31, 2012 66,000 64,000
December 31, 2013 54,000 57,000
(a) Prepare the journal entry at December 31 (Harper's year-end) for 2011, 2012, and 2013 to record the fair value option for these notes.
(b) At what amount will the note be reported on Harper's 2012 balance sheet?
(c) What is the effect of recording the fair value option on these notes on Harper's 2013 income?