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12 May, 17:37

On July 1, Year 1, Kay Corp. sold equipment to Mando Co. for $100,000. Kay accepted a 10% note receivable for the entire sales price. This note is payable in two equal installments of $50,000 plus accrued interest on December 31, Year 1 and Year 2. On July 1, Year 2, Kay discounted the note at a bank at an interest rate of 12%. Kay's proceeds from the discounted note were:A. $48,400. B. $49,350. C. $50,350. D. $51,700.

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  1. 12 May, 20:47
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    (D) $ 51,700

    Explanation:

    Given;

    The amount for the first year = $ 50,000

    The interest for the first year = 10%

    thus,

    the amount of interest paid = 0.1 * $ 50,000 = $ 5,000

    Thus,

    The amount received by the bank at the end of the first year will be

    = $ 50000 + $ 5,000

    = $ 55,000

    Now,

    for the second year, discounted rate = 12% per year

    for up to July 1 = 6 months = discount rate = 12% * (6/12)

    thus, total discount fee = $ 55,000 * 12% * (6/12) = $ 3,300

    Therefore,

    Kay's proceeds from the discounted note were = $ 55,000 - $ 3,300

    or

    = $ 51,700

    Hence, option (D) is the correct answer
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