PE 11-1B Proceeds from notes payable

On February 1, Tectronic Co. issued a 60-day note with a face amount of $120,000 to Tokai Warehouse Co. for cash.

a. Determine the proceeds of the note, assuming the note carries an interest rate of 9%.
b. Determine the proceeds of the note, assuming the note is discounted at 9%.

Answer:
a. $120,000
b. $118,200 [$120,000 – ($120,000 × 60/360 × 9%)]

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