(Fair V alue Option) Fallen Company commonly issues long-term notes payable to its various lenders. Fallen has had a pretty good credit rating such that its effective borrowing rate is quite low (less than 8% on an annual basis). Fallen 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.

Â	Carrying Value	Â	Fair Value
December 31, 2014	$54,000	Â	$54,000
December 31, 2015	44,000	Â	42,500
December 31, 2016	36,000	Â	38,000

Instructions

(a) Prepare the journal entry at December 31 (Fallen’s year-end) for 2014, 2015, and 2016, to record the fair value option for these notes.

^{(b) At what amount will the note be r eported on Fallen’s 2015 balance sheet?}

^{(c) What is the e f fect of r eco r ding the fair value option on these notes on Fallen’s 2016 income?}

^{(d) Assuming that general market inte r est rates have been stable over the period, does the fair value}

^{data for the notes indicate that Fallen’s c r editworthiness has imp r oved or declined in 2016? Explain.}