Mobile Oil Company accepted a $10,000, 120 day note, dated March 3, at 8.5% to settle a past due accounts receivable. Mobile Oil discounted the note to raise cash on May 10 at a discounted rate of 9%. What proceeds did Mobile Oil receive?
To calculate the proceeds Mobile Oil received from discounting the note, we need to determine the discount and subtract it from the face value of the note.
First, let's calculate the discount using the discount rate and the number of days the note was discounted.
Step 1: Calculate the number of days between March 3 and May 10.
- March 3 to May 10 = 2 months + 10 days
- Assuming 30 days per month, this is approximately 70 days.
Step 2: Calculate the discount based on the discount rate and the number of days.
- Formula: Discount = Face Value × Discount Rate × (Number of Days / 360)
- Given: Face Value = $10,000, Discount Rate = 9%, Number of Days = 70
- Discount = $10,000 × 9% × (70 / 360)
- Discount = $10,000 × 0.09 × 0.1944
- Discount ≈ $175.68
Now, let's calculate the proceeds Mobile Oil received.
Step 3: Subtract the discount from the face value of the note.
- Proceeds = Face Value - Discount
- Given: Face Value = $10,000, Discount ≈ $175.68
- Proceeds = $10,000 - $175.68
- Proceeds ≈ $9,824.32
Therefore, Mobile Oil received approximately $9,824.32 as proceeds when discounting the note.