Question

Chen Inc. accepted a two-year noninterest-bearing note for $605,000 on January 1, 2021. The note was accepted as payment for merchandise with a fair value of $500,000. The effective interest rate is 10%. What is the correct entry to record the note? Multiple Choice Notes receivable 605,000 Interest revenue 105,000 Cost of sales 500,000 Notes receivable 605,000 Accounts receivable 605,000 Notes receivable 605,000 Discount on notes receivable 105,000 Sales revenue 500,000 Notes receivable 500,000 Accounts receivable 500,000

Answer 1

Answer:

Notes receivable 605,000 Discount on notes receivable 105,000 Sales revenue 500,000

Explanation:

The Journal entry are as follow:

Notes receivable Dr, 605,000  

       To Discount on notes receivable $105,000

       To Sales revenue $500,000

(Being notes receivable is recorded)

Therefore here we debited the Note receivable and sales revenue will be paid at the time of issuing sales statements. If notes interest free then the excess amount will be credited on the receivable note and adjusted monthly to interest income.