Rex Corporation accepted a $5,500, 8.50%, 150-day note dated August 8 from Regis Company in settlement of a past bill. On October 11, Rex discounted the note at Park Bank at 9.50%.
To calculate the proceeds from discounting a note, we need to determine the discount amount and subtract it from the face value of the note.
Step 1: Calculate the discount amount:
- The note is worth $5,500, and it is discounted for 150 days, from August 8 to October 11.
- The discount rate is 9.50%.
To calculate the discount amount, we use the formula:
Discount Amount = Face Value of the Note × Discount Rate × Discount Period
Discount Period = 150 days / 360 (assuming a 360-day year)
Discount Amount = $5,500 × 9.50% × (150 / 360)
Discount Amount ≈ $215.28
Step 2: Calculate the proceeds from discounting:
Proceeds = Face Value of the Note - Discount Amount
Proceeds = $5,500 - $215.28
Proceeds ≈ $5,284.72
Therefore, the proceeds from discounting the note at Park Bank are approximately $5,284.72.