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When a note is discounted at a bank, it is normally done with recourse. True/False

When a note is discounted at a bank, it is normally done with recourse. True/False

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Answer #1

Yes it is true that when note is discounted at a bank it is normally done with recourse.

Reason : Notes are usually sold (discounted) with recourse, which means the company discounting the note agrees to pay the financial institution if the maker dishonors the note. When notes receivable are sold with recourse, the company has a contingent liability that must be disclosed in the notes accompanying the financial statements.

The discount rate is the annual percentage rate that the financial institution charges for buying a note and collecting the debt. The discount period is the length of time between a note's sale and its due date. The discount, which is the fee that the financial institution charges, is found by multiplying the note's maturity value by the discount rate and the discount period.

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