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Page > of 11 - ZOOM + Accounting 1A Class Notes and Classwork Chapter 10 - Liabilities: Current, Installment Notes and Contingencies Step 1: Calculate
Page > of 11 - ZOOM + Accounting 1A Class Notes and Classwork Chapter 10 - Liabilities: Current, Installment Notes and Contingencies Step 1: Calculate the Discount on the Note Discount=Face x Discount Rate x Time Period (Discount Rate the interest the bank is charging on the note) (57,500 x 12% x 90/360 - $225) Step 2: Calculate the Cash Proceeds Received on the Note Proceeds - Face - Discount Example ($7,500 - 225 - $7275) . Debit Credit Step 3: Record the linbility resulting from the note and the cash received Date Description Post rer 1 2 3 1 2 3 Step 4: Record Payment when the note matures 4 Date Description Post rel Debit Credit 1 1 2 Question: Would you rather borrow S10,000 by issuing a 90 day 15% note or a 90 day non-interest bearing note discounted at 15%? Interest cost either way is $375 BUT with a non-interest bearing note you only receive S9,625 at the a beginning 5375 / 510,000 360/90 - 15 5375 / 59.625 160/90 - 15.6% Juno issued a 120 day note for $120,000 to Thor for merchandise inventory. The note is discounted 10% Journalize the transaction for both Juno and Thor Juno Date Description Post Debit Credit 1 2 3 4 5 S 6 THOR 1 2 3 4 5 6 Date Description l'ost Debit Credit 1 1 Page 3
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