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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Tallent Company received a $30,000, 6-month, 10% interest-bearing note from a customer. After holding the note for 2 months, Tallent was in need of cash and sold the note at the United National Bank at a 12% discount rate. The amount of cash received by Tallent from the bank was:

  1. a. $31,260
  2. b. $30,870
  3. c. $30,300
  4. d. $30,240

To determine

Identify the amount of cash that is must be received by Company T from bank.

Explanation

Accounts receivable:

Accounts receivable refers to the amounts to be received within a short period from customers upon the sale of goods and services on account. In other words, accounts receivable are amounts customers owe to the business. Accounts receivable is an asset of a business.

Identify the amount of cash that is must be received by Company T from bank.

Proceeds received = Maturity value (1) Discount (2) =$31,500$1,260=$30,240

Working note:

(1) Calculate the maturity value of note:

Maturity value of  note = Face value of  note +( Face value of  note×Interest rate ×Time period

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