Question:
Lets complete the question as thus
Selkirk Company obtained a $12,000 note receivable from a customer on January 1, 2021. The note, along with interest at 10%, is due on July 1, 2021. On February 28, 2021, Selkirk discounted the note at Unionville Bank. The bank’s discount rate is 12%.
How much proceed would Selkirk
Answer:
Proceeds from discounting =$11,970
Explanation:
To calculate the proceeds, the gross proceed less the discount charged by the bank. The gross proceed is the total amount that would have been received should the note is held to maturity.
Proceeds = Gross proceed - Discount charges
The note maturity period = 6 months, January 1 to July 1
Gross proceed= P + (P×R×T)
P- 12,000 R- 10%, T- 6/12
Gross proceed = 12,000+ (12,000× 6%× 10/12)= $12,600
Discount charges = Gross proceed × discount rate × time to maturity
Time to maturity at the date of discounting = 6 - 1 = 5 months
February 28 to July 1
Discount rate - 12%, Time- 5/12
12600× 5/12× 12% = $630
Proceeds to be received
= $12,600- $630
= $11,970
