Question

On September 1, Vibrant Salon Company issued a 60-day note with a face amount of $51,600 to Delilah Hair Products Company for merchandise inventory. Assume a 360-day year.

a. Determine the proceeds of the note, assuming the note carries an interest rate of 10%.
$

b. Determine the proceeds of the note, assuming the note is discounted at 10%.
$

Answer 1

Solution:
a.	The proceeds of the note	$51,600
Working Notes:
	In this part a. The note is not discounted so amount received will be total face value of the note $51,600
	When we issue note we received (the proceeds of the note) is the total face value of NOTE from the receiver of the NOTE or equivalent in the given case received merchandise of same amount.
b,	the proceeds of the note, assuming the note is discounted at 10%
		50,740
Working Notes:
	Receiver of the NOTE get it discounted to get cash and receiver will received only net of discount amount
	Here given cases Receiver is Delilah Hair Products, show they will discounted and get only net of discount amount as proceeds of NOTE
	the proceeds of the note, assuming the note is discounted at 10%
	= Face value - Discount
	= Face value -(face value x discount rate x period of note / day in a year)
	=51,600 - 51,600 x 10% x 60/360
	=51,600 - 860
	=51,600 - 860
	=50,740
Please feel free to ask if anything about above solution in comment section of the question.