Answer:
Total loss recognized = $1,380
Explanation:
Given:
Value of note receivable = $40,000
Rate of interest = 6% = 0.06
Date of discount = September 30, 2016
Discount rate = 10% = 0.10
Discount period = 9 months / 12 = 0.75
Computation of maturity value:
Maturity value = $40,000 + ($40,000 × 0.06)
Maturity value = $40,000 + $2400
Maturity value = $42,400
Computation of amount received on discount from bank:
Amount received on discount from bank = Maturity Value - (Maturity Value × Discount rate × Discount Period)
= $42,400 - ($42,400 × 0.10 × 0.75)
= $42,400 - $3,180
Amount received on discount from bank = $39,220
Value of note at the time of Discount = $40,000 + ($40,000 ×0.06 × {1-0.75})
= $40,000 + $600
Value of note at the time of Discount = $40,600
Total loss recognized = Value of note at the time of Discount - Amount received on discount from bank
Total loss recognized = $40600 - $39220
Total loss recognized = $1,380
