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College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756

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Chapter
Section
BuyFindarrow_forward

College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756
Textbook Problem

The discount amount is calculated by multiplying the maturity value times the _____ times the discount period.

  1. (a) discount rate
  2. (b) interest rate
  3. (c) term of note
  4. (d) net proceeds

To determine

State the option which is used to calculate the discount amount is calculated.

Explanation

Promissory note:

Promissory note is the written to make payment for a particular sum at a definite future date.

Justification for the incorrect options of (b), (c) and (d):

Interest rate, term of note and net proceeds is note used to calculate the discount amount. Therefore, these are incorrect options.

Justification for the correct option of (a):

The discount amount is calculated by multiplying by maturity value, discount rate and discount period. For calculating discount amount only maturity value is taken and not the principal value of the note. Following formula is used to compute the discount amount of the note:

Discountamount=

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