Question

On September 1, Elegant Salon Company issued a 30-day note with a face amount of $94,800 to Osborne Hair Products Company for merchandise inventory. Assume a 360-day year.

a. Determine the proceeds of the note, assuming the note carries an interest rate of 8%.
$

b. Determine the proceeds of the note, assuming the note is discounted at 8%.
$

Answer 1

a) assuming the note carries an interest rate of 8%.

Proceeds of the note
For Elegant Salon Company = Face value = $94800

For Osborne Hair Products Company = face value +Interest

= 94800+(94800*0.08*30/360) = $95432

b) assuming the note is discounted at 8%

Proceeds of the note
For Elegant Salon Company = Present Value of the Face Value at which the note is issued at 8% for 30 days

= 94800-(94800*0.08*120/360) = $94168

Osborne Hair Products Company = Face value = $94800