Mobile Oil Company accepted a $10,000, 120 day note, dated on March 3, at 8.5% to settle past due accounts receivable. Mobile Oil dicounted the note to raise cash on May 10 at a discounted rate 9%. What proceeds did Mobile Oil receive?
To calculate the proceeds that Mobile Oil received from discounting the note, we need to follow these steps:
Step 1: Calculate the interest on the note from March 3 to May 10.
Since the note is a 120-day note, the interest period is from March 3 to July 1.
To calculate the interest, we can use the simple interest formula:
Interest = Principal * Rate * Time
In this case, the Principal is $10,000, the Rate is 8.5% (0.085 as a decimal), and the Time is 120 days.
Interest = $10,000 * 0.085 * (120/360) = $283.33
Step 2: Calculate the discount on the note.
To calculate the discount, we can use the simple interest formula:
Discount = Principal * Rate * Time
In this case, the Principal is $10,000, the Rate is 9% (0.09 as a decimal), and the Time is 51 days (from May 10 to July 1).
Discount = $10,000 * 0.09 * (51/360) = $127.50
Step 3: Calculate the proceeds received by Mobile Oil.
Proceeds = Principal - Discount
Proceeds = $10,000 - $127.50 = $9,872.50
Therefore, Mobile Oil received $9,872.50 as proceeds from discounting the note.