Answer:
Debit: Discount on note receivable with $55,000
Debit: Cash with $605,000
Credit: Note receivable with $605,000
Credit: Interest revenue with $55,000
Explanation:
Step 1: Calculation of discount on note receivable and interest revenue
Excess of note value over merchandise value = Note value - Merchandise with a fair value
= $605,000 - $500,000
Excess of note value over merchandise value = $105,000
Interest on merchandise = $500,000 × 10% = $50,000
Discount on note receivable = $105,000 - $50,000 = $55,000
This amount of $55,000 is also an interest revenue.
Step 2: Recording of the cash collection on December 31, 2022.
DR ($) CR ($)
Discount on note receivable 55,000
Cash 605,000
Note receivable 605,000
Interest revenue 55,000
Being the record of the cash collection on December 31, 2022.
