Question

Russia Corporation obtained a $50,000 note receivable from a customer on June 30, 2018. The note, along with interest at 6%, is due on June 30, 2019. On September 30, 2018, Russia discounted the note at Wells Fargo. The bank's discount rate is 10%. What amount of cash did Russia receive from Wells Fargo?

Answer 1

The amount of cash did Russia receive from Wells Fargo is $49,025

Step-by-step explanation:

* Since the receivable is charged with 6% of the interest rate for one-year, the amount Russia Corporation will receive on June 30th 2019 is: Principal + Interest on the principal = 50,000 + 50,000*6% = $53,000.

* In 30th September 2019, it is 9-month to the maturity of the Receivable valued at $53,000 and the bank charge 10% on the discount, so the cost of discount will be: 53,000 x 10% x 9/12 = $3,975

=> The total cash received by Russia from the Bank = Receivable plus interest on it to be collected on 30 June 2019 - Discount cost = 53,000 - 3,975 = $49,025.