Chen Inc. accepted a two-year noninterest-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