Chen Inc. accepted a two-year non interest-bearing note for $605,000 on January 1, 2016. The note was accepted as payment for merchandise with a fair value of $500,000. The effective interest rate is 10%.
1. The cash collection on December 31, 2017, would be recorded as:
a)
|
Cash
|
605,000
|
|
|
Discount on note receivable
|
105,000
|
|
|
Note receivable
|
|
605,000
|
|
Interest revenue
|
|
105,000
|
b)
|
Cash
|
605,000
|
|
|
Note receivable
|
|
500,000
|
|
Discount on note receivable
|
|
105,000
|
c)
|
Cash
|
605,000
|
|
|
Note receivable
|
|
605,000
|
d)
|
Discount on note receivable
|
55,000
|
|
|
Cash
|
605,000
|
|
|
Note receivable
|
|
605,000
|
|
Interest revenue
|
|
55,000
|
2. The entry to record interest on December 31, 2016 would be:
a)
|
Discount on note receivable
|
50,000
|
|
|
Note receivable
|
|
50,000
|
b)
|
Cash
|
50,000
|
|
|
Discount on note receivable
|
|
50,000
|
c)
|
Discount on note receivable
|
50,000
|
|
|
Interest revenue
|
|
50,000
|
d)
|
Cash
|
50,000
|
|
|
Interest receivable
|
|
50,000
|