Final answer:
To accrue interest for the first 3 months the note was outstanding, multiply the principal amount by the interest rate and time. The cash proceeds from discounting the note can be calculated by subtracting the discount amount from the principal.
Step-by-step explanation:
To accrue interest for the first 3 months the note was outstanding, you need to calculate the interest expense using the discount rate of 12%. The formula to calculate interest expense is principal x interest rate x time. In this case, the principal amount is $200,000 and the interest rate is 10% (annual rate), which is equal to 0.4167% per month. So for the first 3 months, the interest expense would be $200,000 x 0.4167% x 3 = $2,500.The cash proceeds from discounting the note with the bank can be calculated using the formula Cash proceeds = Principal - Discount. In this case, the principal amount is $200,000 and the discount rate is 12%. The discount amount would be $200,000 x 12% x (3/12) = $6,000.
Therefore, the cash proceeds would be $200,000 - $6,000 = $194,000.To calculate the interest for the first 3 months that the note was outstanding, use the formula for simple interest: Interest = Principal × Rate × Time. In this scenario, the principal is $200,000, the annual interest rate is 10%, and the time is 3 months (or ⅔ of a year).Interest for 3 months = $200,000 × 10% × (⅔) = $200,000 × 0.10 × 0.25 = $5,000.The journal entry to accrue this interest would be:Debit Interest Receivable $5,000Credit Interest Revenue $5,000For the cash proceeds from the discount at the bank, we use the discounting formula: Cash Proceeds = Face Value - (Face Value × Discount Rate × Time Remaining). With a 12% discount rate and 6 months remaining until the note matures:Cash Proceeds = $200,000 - ($200,000 × 12% × (⅔)) = $200,000 - $12,000 = $188,000.