Exhibit 7-1 Martin & Cox, Inc.accepted a $50, 000, 8%, 90-day note receivable for services rendered to a client.Thirty days later, Martin & Cox discounted the note at a bank at 10%.Assume interest has not been recognized for the first month.
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Refer to Exhibit 7-1.The entry to record the proceeds from the sale of the note would include a

Question

Quizplus · Accepted Answer

When the note is discounted, the bank will deduct the interest for the remaining 60 days (90-30) at the discount rate of 10%. The calculation is as follows:
Discount = $50,000 x 10% x 60/360 = $833.33
Proceeds = Face value - Discount = $50,000 - $833.33 = $49,166.67
Therefore, the entry to record the proceeds from the sale of the note would be:
Debit Cash $49,166.67
Credit Note Receivable $50,000
Credit Discount on Note Receivable $833.33
There is no interest to be recognized for the first month since it has not yet been earned. Therefore, choices A, C, and D are incorrect.