Mobilee Oil Company accepted a $10,000, 120-day note,
dated March 3, at 8.5% to settle a past due accounts
receivable. Mobilee Oil discounted the note to raise cash
on May 10 at a discounted rate of 9%. What proceeds did
Mobilee Oil receive?
Amt. = 10000 - 0.09*10000 = $9,100.
To calculate the proceeds that Mobilee Oil received from discounting the note, we need to first calculate the discount on the note. The discount is the amount deducted from the face value of the note to raise cash.
Step 1: Calculate the number of days between March 3 and May 10.
120 days (the term of the note) - 68 days (from March 3 to May 10) = 52 days.
Step 2: Calculate the discount amount using the formula:
Discount = Face Value x Discount Rate x Time
Time is calculated as a decimal fraction of a year. In this case, it is 52/365 (since there are 365 days in a year).
Discount = $10,000 x 9% x (52/365) = $126.03 (rounded to the nearest cent).
Step 3: Calculate the proceeds received by subtracting the discount from the face value:
Proceeds = Face Value - Discount = $10,000 - $126.03 = $9,873.97 (rounded to the nearest cent).
Therefore, Mobilee Oil received proceeds of $9,873.97 when discounting the note.