On september 5 Sheffield company discounted at Sunshine bank a 9000.00 (maturity value), 120-days note dated June 5th. Sunshines discounted rate was 9%. What proceeds did sheffield company receive?
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To calculate the proceeds Sheffield Company received from the discounted note, we need to determine the interest that Sunshine Bank deducted for the 120-day period.
First, find the interest using the formula:
Interest = Face value of the note * Discount rate * Time
Where:
Face value of the note = $9,000.00
Discount rate = 9% (expressed as a decimal, 0.09)
Time = 120 days / 360 days (assuming a 360-day year for simplicity)
Time = 120/360 = 1/3
Discount rate = 0.09
Interest = $9,000.00 * 0.09 * 1/3
Next, simply calculate the interest:
Interest = $9,000.00 * 0.09 * 1/3 = $270.00
The interest withheld by Sunshine Bank for the 120-day period is $270.00.
To calculate the proceeds Sheffield Company received, subtract the interest from the face value:
Proceeds = Face value of the note - Interest
Proceeds = $9,000.00 - $270.00 = $8,730.00
Therefore, Sheffield Company received $8,730.00 as the proceeds from the discounted note.