Chen inc accepted a two-year non interest-bearing note for

Question

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