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Name: JAB Consulting received a promissory note of $18,500 at 8% simple inte
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Description: JAB Consulting received a promissory note of $18,500 at 8% simple interest for 15 months from one of its customers. After 6 months, Grove Isle Bank discounted the note at a discount rate of 5% Calculate the proceeds that JAB Consulting will receive f

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter9: Accounting For Receivables

Section: Chapter Questions

Problem 22MC: A company collects an honored note with a maturity date of 24 months from establishment, a 10%...

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JAB Consulting received a promissory note of $18,500 at 8% simple interest for 15 months from one of its customers. After 6 months, Grove Isle Bank discounted the note at a discount rate of 5% Calculate the proceeds that JAB Consulting will receive from the discounted note.

Step 1

When a promissory note is sold before maturity, it is said to be discounted. The maturity value represents the total amount of money a promissory note will be worth after interest has accrued.

The maturity value is calculated as follows where the rate is expressed as a decimal and the time is a fraction whose numerator is the given amount of time in months and denominator is 12 months.

maturity value = principal(1 + rate ✕ time)

The rate was given to be 8%. As a decimal, we have

8% = .

Find the maturity value (in $) for the promissory note of $18,500 at 8% interest for 15 months.

maturity value

principal(1 + rate ✕ time)

18,500

1 + ✕

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