Chapter 10 Extra Credit Word Problem 5 Points Due By The End

Chapter 10 Extra Creditword Problem 5 Pointsdue By The End Of Wednesd

Chapter 10 Extra Credit Word Problem: 5 points Due by the end of Wednesday, 8/22 To be eligible for partial points you must show your work! Mr. Robie, owner of the Black Cat Bakery owes $21,600 on a 4.5%, 90 day note. On Day 10, he makes a partial payment of $1,600. On Day 30, he makes an additional partial payment of $8,000. On Day 60 he makes yet another partial payment of $750. Assuming ordinary interest, what is the adjusted balance due at the end of the 90 days? Remember to use the U.S. Rule! (Round to the nearest cent)

Chapter 11 Extra Credit 5 points Due by the end of Wednesday, 8/22 To be eligible for partial points you must show your work! Every year, Mr. Robie of the Black Cat Bakery is asked to provide a variety of cookies for a local grocery store chain, Save-O-Store for the Labor Day holiday. Save-O-Store operates several grocery stores, serving a large local community. In the week preceding the Labor Day holiday, Mr. Robie supplied $2,200 worth of cookies to Save-O-Store locations. He invoiced Save-O-Store for the goods with a due date of September 15.

On September 12, Save-O-Store, experiencing cash flow difficulties, asks Mr. Robie if he will accept a 60 day Note, at 4.75% interest. Mr. Robie accepts the Note dated September 12. A few weeks later, Mr. Robie finds himself (and the Bakery) to be short of cash. He goes to his local community bank, Healthy Bank, to ask them to discount his Note. Healthy Bank agrees to discount the note on October 2, at a 5% discount rate. Question: What will Mr. Robie’s proceeds be (use ordinary interest)? Remember to read the problem very carefully!

Paper For Above instruction

This paper systematically solves two financial problems related to notes payable and receivable, emphasizing the application of the U.S. Rule and ordinary interest calculations over specific periods. The first problem involves calculating the adjusted balance due on a note after several partial payments, considering accrued interest, while the second problem determines the proceeds from discounting a note at a bank, factoring in interest rates and timing.

Problem 1: Adjusted Balance Due on a Note with Partial Payments

Mr. Robie owes $21,600 on a 90-day note at 4.5% interest. The note is dated at the beginning of the period, and multiple partial payments are made at different intervals: \$1,600 on day 10, \$8,000 on day 30, and \$750 on day 60. The key task is to determine the remaining balance at day 90, considering interest accrued over each period and accounting for partial payments under the U.S. Rule.

The U.S. Rule stipulates that each partial payment first is applied to accrued interest, and any remaining amount reduces the principal. Since interest is based on ordinary interest, we consider a 360-day year for calculations.

Step 1: Calculate interest from day 0 to day 10

Interest on \$21,600 for 10 days at 4.5%:

Interest = Principal × Rate × Time = \$21,600 × 0.045 × (10/360) = \$21,600 × 0.045 × 0.02778 ≈ \$21.60

Step 2: Apply partial payment on day 10

The \$1,600 payment first covers accrued interest (\$21.60), reducing interest owed to zero, with the remainder reducing principal:

Remaining principal = \$21,600 - (\$1,600 - \$21.60) = \$21,600 - \$1,578.40 = \$20,021.60

Step 3: Calculate interest from day 10 to day 30

Interest on \$20,021.60 for 20 days:

Interest = \$20,021.60 × 0.045 × (20/360) ≈ \$20,021.60 × 0.045 × 0.05556 ≈ \$50.00

Step 4: Apply partial payment on day 30

The \$8,000 payment first covers interest (\$50), then reduces principal:

Remaining principal = \$20,021.60 - (\$8,000 - \$50) = \$20,021.60 - \$7,950 = \$12,071.60

Step 5: Calculate interest from day 30 to day 60

Interest on \$12,071.60 for 30 days:

Interest = \$12,071.60 × 0.045 × (30/360) ≈ \$12,071.60 × 0.045 × 0.08333 ≈ \$45.00

Step 6: Apply partial payment on day 60

The \$750 payment covers interest (\$45), with remaining reducing principal:

Remaining principal = \$12,071.60 - (\$750 - \$45) = \$12,071.60 - \$705 = \$11,366.60

Step 7: Calculate interest from day 60 to day 90

Interest on \$11,366.60 for 30 days:

Interest = \$11,366.60 × 0.045 × (30/360) ≈ \$11,366.60 × 0.045 × 0.08333 ≈ \$42.50

Final step: Sum remaining principal and interest

Total interest accrued over the entire period is the sum of individual interest calculations: \$21.60 + \$50 + \$45 + \$42.50 ≈ \$159.60.

The remaining principal at day 90 is approximately \$11,366.60. The total amount due at the end of 90 days is the remaining principal plus any accrued but unpaid interest, which in this case is the sum of interest accrued (\$159.60) and the remaining principal, totaling approximately \$11,526.20.

Problem 2: Discounting a Note at a Bank

Mr. Robie accepted a 60-day note at 4.75% interest for \$2,200 worth of cookies. The note was dated September 12. Later, the bank discounted the note on October 2 at a 5% discount rate. The interest earned over the period from September 12 to October 2 must be calculated, and the proceeds from discounting need to be determined, accounting for the bank's discount rate using ordinary interest.

Step 1: Calculate interest from September 12 to October 2

Number of days between September 12 and October 2:

From September 12 to September 30: 18 days, plus 2 days in October, totaling 20 days.

Interest for 20 days at 4.75%:

Interest = \$2,200 × 0.0475 × (20/360) ≈ \$2,200 × 0.0475 × 0.05556 ≈ \$5.83

Step 2: Calculate the maturity value of the note at September 12

Interest for full 60 days:

Interest = \$2,200 × 0.0475 × (60/360) ≈ \$2,200 × 0.0475 × 0.16667 ≈ \$17.61

Maturity value = Principal + Interest = \$2,200 + \$17.61 = \$2,217.61

Step 3: Determine the discount amount

Bank discounts the note on October 2 at a 5% discount rate. The discount period is from October 2 to the maturity date (which is 60 days after September 12, i.e., November 11). The discount is applied using the number of days from the discount date to the maturity date:

Number of days from October 2 to November 11: 40 days.

Discount = Maturity value × Discount rate × (Days until maturity / 360):

Discount = \$2,217.61 × 0.05 × (40/360) ≈ \$2,217.61 × 0.05 × 0.11111 ≈ \$12.32

Step 4: Calculate net proceeds

Proceeds = Maturity value – Discount = \$2,217.61 – \$12.32 ≈ \$2,205.29

Therefore, Mr. Robie’s net proceeds from discounting the note at Healthy Bank would be approximately \$2,205.29.

Conclusion

The calculations exemplify the application of the U.S. Rule in handling partial payments on a note, and the computation of bank discounting on a note, incorporating ordinary interest. These methods are fundamental in financial accounting for proper valuation and recording of notes receivable and payable, ensuring accuracy in financial statements and effective cash flow management.

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