Answer:
a. See the journal entry below.
b. The amount of total revenue that should be recognized in 2020 is $9,800.
Explanation:
Note: There is slight error in the question as 2017 was erroneously mentioned. The year 2020 is therefore used throughout in answering this question.
a. Prepare the journal entry to record this transaction on January 2, 2020.
The following can first be calculated as follows:
Discount on Notes Receivable = Face value of the note - Fair value of the goods = $9,800 - $8,700 = $1,100
The journal entries will therefore look as follows:
<u>Date Particulars Debit ($) Credit ($) </u>
02 Jan 2020 Notes Receivable 9,800
Sales Revenue 8,700
Discount on Notes Receivable 1,100
<u><em> (To record sales note receivable in exchange for sale.) </em></u>
Cost of Goods Sold 5,220
Inventory 5,220
<u><em> (To record cost of goods sold.) </em></u>
b. How much total revenue should be recognized in 2020?
This cam be calculated as follows:
Sales revenue = Fair value of the goods = $8,700
Interest revenue = Face value of the note - Fair value of the goods = $9,800 - $8,700 = $1,100
Total Revenue = sales revenue + interest revenue = $8,700 + $1,100 = $9,800
Therefore, the amount of total revenue that should be recognized in 2020 is $9,800.
