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

Quizplus · Accepted Answer

The proceeds from the sale of the note would be the face value of the note minus the interest charged by the bank for the remaining 60 days until maturity. The interest charged by the bank for the remaining 60 days is $150,000 x 10% x (60/360) = $1,000. Therefore, the proceeds from the sale of the note would be $150,000 - $1,000 = $149,000. However, since the question states that interest has not been recognized for the first month, this means that O'Martin & Lowry has not accrued $1,000 of interest income in the first 30 days. Therefore, the entry to record the proceeds from the sale of the note would be a debit to Cash for $150,450 ($149,000 + $1,000 + $1,450) and a credit to Notes Receivable for $150,000 and a credit to Interest Receivable for $1,000.