Exhibit 6-1
O’Martin & Lowry, Inc. accepted a $150,000, 8%, 90-day note receivable for services rendered to a client. Thirty days later, O’Martin & Lowry discounted the note at a bank at 10%. Assume interest has not been recognized for the first month.

-Refer to Exhibit 6-1. The entry to record the proceeds from the sale of the note would include a

Question

Exhibit 6-1
O’Martin & Lowry, Inc. accepted a $150,000, 8%, 90-day note receivable for services rendered to a client. Thirty days later, O’Martin & Lowry discounted the note at a bank at 10%. Assume interest has not been recognized for the first month.

-Refer to Exhibit 6-1. The entry to record the proceeds from the sale of the note would include a

Quizplus · Accepted Answer

The proceeds from the sale of the note are calculated by first determining the maturity value of the note, then subtracting the discount the bank takes. The maturity value includes the principal plus interest for the 90 days at 8% annual interest. The interest for 90 days is $150,000 * 8% * (90/360) = $3,000. So, the maturity value is $150,000 + $3,000 = $153,000. The bank's discount is 10% annual interest for the remaining 60 days, which is $153,000 * 10% * (60/360) = $2,550. The proceeds are then $153,000 - $2,550 = $150,450.

Exhibit 6-1 O’Martin & Lowry, Inc. Accepted a $150,000, 8%, 90-Day Note