Hi guys, please help me solve this question. Please tell me how exectly should I solved this question. Thanks. On September 1, 2000, ABC Company received an 7000, 12%, 120 day note from a credit customer wishing to extend its repayment period. On october 1st, 2000, thirty days after the note was received, ABC discounted the note at the bank at 14%. How much cash did ABC company received from the bank?
To solve this question, we need to calculate the amount of cash ABC Company received from the bank after discounting the note.
Step 1: Determine the maturity date of the note.
The note was received on September 1, 2000, for a period of 120 days. To find the maturity date, add 120 days to September 1, 2000.
Maturity Date = September 1, 2000 + 120 days = January 1, 2001
Step 2: Calculate the interest on the note for the period until the maturity date.
To calculate the interest, we need to find the number of days from October 1, 2000, until the maturity date (January 1, 2001).
Days from October 1, 2000, to January 1, 2001 = 31 (October) + 30 (November) + 31 (December) + 1 (January) = 93 days
Step 3: Calculate the interest owed on the note.
The note had an interest rate of 12%. To find the interest owed, multiply the principal amount of $7000 by the interest rate and divide it by 360 (assuming a 360-day year).
Interest = (Principal * Interest Rate * Days) / 360
Interest = ($7000 * 12% * 93) / 360
Step 4: Calculate the discount on the note.
In October, ABC Company discounted the note at the bank at an interest rate of 14%. To calculate the discount, multiply the interest amount (calculated in step 3) by the discount rate of 14% and for the time period of 30 days (from October 1, 2000).
Discount = (Interest * Discount Rate * Days) / 360
Discount = (Interest * 14% * 30) / 360
Step 5: Calculate the cash received from the bank.
The cash received from the bank will be the principal amount minus the discount.
Cash Received = Principal - Discount
By following the above steps and inserting the appropriate values, you will be able to calculate the cash received by ABC Company from the bank.
To solve this question, you need to understand the concept of discounting a note. Discounting a note means selling the note to a bank or financial institution before its maturity date at a discounted value. The bank gives you the discounted value, and they will collect the full value of the note from the debtor when it matures.
Let's break down the information provided in the question:
1. On September 1, 2000, ABC Company received a note from a credit customer. The note's principal amount is $7000, it carries an interest rate of 12%, and it has a repayment period of 120 days.
2. On October 1, 2000, thirty days after the note was received, ABC discounted the note at the bank at 14%.
To find out how much cash ABC Company received from the bank, you need to calculate the discounted value of the note. Here's how:
Step 1: Calculate the interest accrued for 30 days on the principal amount.
Interest accrued = Principal amount * Interest rate * (Number of days / 360)
Interest accrued = $7000 * 0.12 * (30 / 360)
= $700
Step 2: Calculate the discounted value of the note.
Discounted value = Principal amount - Interest accrued
Discounted value = $7000 - $700
= $6300
Therefore, ABC Company received $6300 in cash from the bank by discounting the note.
Keep in mind that this calculation assumes a simple interest calculation and a 360-day year.