Question

Proceeds from Notes Payable

On May 15, Maynard Co. borrowed cash from Texas Bank by issuing a 60-day note with a face amount of $100,000. Assume a 360-day year.
Required:
a. Determine the proceeds of the note, assuming that the note carries an interest rate of 6%.
b. Determine the proceeds of the note, assuming that the note is discounted at 6%.

Answer 1

A. $100,000

B.$99,000

Step-by-step explanation:

A. Calculation for Determining the proceeds of the note, assuming that the note carries an interest rate of 6%

Based on the information given the note is not discounted which means the face value is equal to the proceeds of $100,000

Hence,

Face value = Proceeds of $100,000

Therefore the proceeds of the note, assuming that the note carries an interest rate of 6% will be $100,000

b. Calculation for Determining the proceeds of the note, assuming the note is discounted at 6%

First step is to find the discount

Using this formula

Discount = Face value amount x Discount rate x (term of note / 360)

Let plug in the formula

Discount= $100,000 x .06 x 60/360

Discount =$360,000/360

Discount= $1,000

Second step is to calculate for the Proceeds

Calculation for the Proceeds

Using this formula

Proceeds = face amount – discount

Let plug in the formula

Proceeds=$100,000 – $1,000

Proceeds= $99,000

Therefore the proceeds of the note, assuming that the note is discounted at 6% will be $99,000