Question

On February 20th, a 5 month note for $7,300 was received by Lucky Company to settle an amount owing from a customer. It bears interest at the rate of 8% per annum. Assume the note is settled on maturity and Lucky makes the appropriate entry. A year has 364 days or 52 weeks.

Required: The amount (simple interest plus principal) received by Lucky at maturity is_____

Answer 1

The amount received by Lucky Company at maturity for the 5-month note bearing an 8% interest rate will be approximately $7,543.33, which includes the principal of $7,300 and the simple interest of about $243.33.

Step-by-step explanation:

The amount (simple interest plus principal) received by Lucky Company at maturity for a 5-month note of $7,300 with an 8% per annum interest rate can be calculated using the simple interest formula:

Interest = Principal × rate × time. To calculate the interest accrued over 5 months (assuming a year has 364 days), the time is expressed in years. Thus, 5 months would be 5/12 of a year. The interest can therefore be calculated as follows:

Interest = $7,300 × 0.08 × (5/12)

After calculating the interest, add it to the principal to find the total amount received at maturity:

Interest = $7,300 × 0.08 × (5/12) = $7,300 × 0.08 × 0.41667 ≈ $243.33

Total amount = Principal + Interest

Total amount = $7,300 + $243.33 ≈ $7,543.33

Lucky Company will receive approximately $7,543.33 at the maturity of the note.