On Oct. 14, Sheffield Company discounted at Sunshine Bank a $9,000 (maturity value), 113-day note dated July 13. Sunshine’s discount rate was 11%. Required:
What proceeds did Sheffield Company receive?

$8,945

Explanation:

Number of days that have passed since Note was issued is;

18 days in July

31 days in August

30 Days in September, and

14 days in October

= 18 + 31 + 30 + 14

= 93 days

93 days have already elapsed out of the 113 so days left is;

= 113 - 93

= 20 days

Assuming a 360 day Calender, Sheffield Company will receive;

= Maturity level - Discount Amount

= 9,000 - (9,000 * 11% * 20/360)

= 9,000 - 55

= $8,945

Sheffield would will get $8,945 of proceeds to represent that 20 days are still left of the note till it matures and so need to be discounted from the maturity value.

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