Selkirk Company obtained a $12,000 note receivable from a customer on January 1, 2021. The note, along with interest at 10%, is due on July 1, 2021. On February 28, 2021, Selkirk discounted the note at Unionville Bank. The bank’s discount rate is 12%.

Question:

Lets complete the question as thus

Selkirk Company obtained a $12,000 note receivable from a customer on January 1, 2021. The note, along with interest at 10%, is due on July 1, 2021. On February 28, 2021, Selkirk discounted the note at Unionville Bank. The bank’s discount rate is 12%.

How much proceed would Selkirk

Proceeds from discounting =$11,970

Explanation:

To calculate the proceeds, the gross proceed less the discount charged by the bank. The gross proceed is the total amount that would have been received should the note is held to maturity.

Proceeds = Gross proceed - Discount charges

The note maturity period = 6 months, January 1 to July 1

Gross proceed= P + (P×R×T)

P- 12,000 R- 10%, T- 6/12

Gross proceed = 12,000+ (12,000× 6%× 10/12)= $12,600

Discount charges = Gross proceed × discount rate × time to maturity

Time to maturity at the date of discounting = 6 - 1 = 5 months

February 28  to July 1

Discount rate - 12%, Time- 5/12

12600× 5/12× 12% = $630

Proceeds to be received

= $12,600- $630

= $11,970

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