Wythe Company received proceeds of $141,000 from issuing a $150,000 face value discount note to Centennial Bank. The note had a one-year term to maturity.Required:a) What discount rate did the bank use?b) Prepare the journal entry to record the receipt of the proceeds of the loan.
What will be an ideal response?
a) 6%
Proceeds of $150,000 = Face value of note of $141,000 ? Discount (the unknown)
Discount = $150,000 ? $141,000 = $9,000
Discount of $9,000 = Face amount of $150,000 × Discount rate (the unknown)
Discount rate = $9,000 ÷ $150,000 = 0.06 = 6%
b)
| Cash | 141,000 | ? |
| Discount on notes payable | 9,000 | ? |
| Notes payable | ? | 150,000 |
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