UNIT 2:

ACCOUNTING FOR RECEIVABLES

Introduction
This unit focuses on accounts receivable, and notes receivables. We describe each of
these assets, their use in practice and how they are accounted for, and reported in
financial statements.
The content of this unit are summarized in to two sections. Sections one discuss
accounting for accounts receivable. Section two explains accounting for notes
receivable.
Section 1:
Accounting for Accounts Receivable
Outline of this Section

1.1 Definition
1.2 Recognizing Accounts Receivable
1.3 Valuing Accounts Receivable
1.4 Methods of Accounting for Bad Debts
1.3.1 Allowance Method
1.3.2 Direct Write-Off Method

1.1 Definition
Accounts receivable are amounts owed by customers on account. They result from
the sale of goods (merchandise) and services on account. These receivables
generally are expected to be collected with 30 to 60 days. They are the most
significant type of claim held by company.
The three primary accounting problems associated with the accounts receivable are:
1- Recognizing accounts receivable
2- Valuing accounts receivable
1.2 Recognizing Accounts Receivable
Recognizing accounts receivable is relatively straight forward.
To illustrate, assume that ABC Company. On July 1, 1996, sells merchandise on
account to DDC Company for Br. 1,000 terms 2/10, n/30. On July 5, merchandise
worth Br. 100 is returned to ABC co. on July 11, payment is received from DDC
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Company for the balance due. The journal entries to record these transactions on the
books ABC co. are as follows:
July 1 Accounts Receivable DDC .Co 1000
Sales 1000
(To record sales on account)
July 5 Sales Returns and allowances 100
Accounts Receivable DDC .Co 100
(To record merchandise returned)
July 11 Cash (900-18) 882
Sales Discount (900x2%) 18
Accounts Receivable DDC .Co 900
(To record collection of accounts receivable)
The opportunity to receive a cash discount usually occurs when a manufacturer sells
to a whole seller or a wholesaler sells to a retailer. A discount is given in these
situations either to encourage prompt payment or for competitive purpose.
On the other hand, retailers rarely grant cash discounts to customers. In these
situations, most sales are either in cash or credit card sales..
To illustrate, assume that you charge on your J.C penny credit card a new outfit that
costs Br. 300. J.C penny will make the following entry at the date of sale.
Account receivable 300
Sales 300
(To record sale of merchandize)
1.3 Valuing Accounts Receivable
Once Receivables are recorded in the accounts, the next question is:
How these receivables should be reported on the balance sheet?
Determining the amount to report as an asset is important because some receivables
will become uncollectible. To ensure that receivables are not overstated on the
balance sheet, they are stated at their cash (net) realizable value.

Cash (net) realizable value- is the net amount expected to be

received in cash.

The cash realizable value excludes amounts that the company estimates it will not
be able to collect. Receivables are therefore reduced by estimated uncollectible
receivables on the balance sheet.
The income statement also is affected by the amount of uncollectible. An expense
for estimated uncollectible is recorded to make certain that expenses are not
understated and are matched with related sales revenue. This expense is reported as
bad debts expense on the income statement.

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1.4 Methods of Accounting for Bad Debts

How does accounts receivable become uncollectible?

Although each customer must satisfy the credit requirements of the seller before the
credit sale is approved, inevitably some accounts receivable become uncollectible.
For example, a company may experience a decline in sales because of a downturn in
the economy. Similarly, individuals may be laid off from their jobs or be faced with
the unexpected hospital bills.

In accounting, credit losses are debited to Bad Debts Expense (or uncollectible
Accounts Expense). Such losses are considered a normal and necessary risk of doing
business on credit basis. In fact, from a management point of view, a reasonable
amount of uncollectible accounts is evidence of a sound credit policy. When bad
debts are abnormally law, the company may be losing profitable business by
following a credit policy that is too strict. Of course, abnormally high bad debts
indicate a credit policy is too lenient.
Two methods are used in accounting for uncollectible accounts:

(1) The allowance method and

(2) The direct write off method.

Each of these methods is explained in the following sections.

1.4.1 Allowance Method
The allowance method is required for financial reporting purpose when bad debts
are material in amounts. Its essential features are:
1. Uncollectible accounts receivable are estimated and matched against sales in the
same accounting period in which the sales occurred.
2. Estimated uncollectible are debited to Bad Debts Expense and credited to allowance for
doubtful accounts through an adjusting entry at the end of each period.
3- Actual uncollectible are debited to allowance for doubtful accounts and credited
to accounts receivable at the time the specific account is written off.
Recording Uncollectible Under Allowance Method
(A) Recording Estimated Uncollectible
To illustrate the allowance method, Assume that ABC Company has credit sales of
Br. 1, 200, 000 in 1996, of which Br. 200,000 remain uncollected at December 31;
The credit manager estimates that Br. 12,000 of these sales will prove uncollectible.
The adjusting entry to record the estimated uncollectible is:

Dec. 31 Bad Debts expense - - - - - - - - - 12,000

Allowance for Doubtful Accounts - - - 12, 000
(To record estimate of uncollectible accounts)

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Bad Debts expense is reported in the income statement as an operating expense
(usually as selling expense). Thus, the estimated uncollectible are matched with
sales in 1996 because expense is recorded in the same year the sales are made.
Allowance for doubtful accounts is a contra asset account that shows the claims of
customers that are expected to become uncollectible in the future. A contra account
is used instead of a direct credit to accounts receivable because we do not know
which customers will not pay. The credit balance in this account will absorb the
specific write-offs when they occur. Allowance for doubtful accounts is not
closed at the end of the fiscal year. It is deducted from accounts receivable in the
current asset section of he balance sheet as follows:

Current assets:
Cash __ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ __ Br. 14,800
Accounts receivable ___ ___ ___ ___ ___ ___ ___ ___ ___ __ 200, 000
Less: Allowance for doubtful accounts ___ ___ ___ ___ ___ _ 12, 000 188,000
Merchandize inventory ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ 310,000
Prepaid Insurance --------------------------------------------------------------------- 25,000
Total current asset ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ 537, 800

The amount of Br. 188,000 represents the expected cash realizable value of the
accounts receivable at the statement date.
(B) Recording the write – off of an Uncollectible Account
Companies use various methods of collecting past – due accounts, such as the
sequence of letters, calls and legal action when all means of collecting past due
account have been exhausted and collection appears impossible, the account should
be written off. To prevent premature write–offs, each write–off should be formally
approved in writing by authorized management personnel.

Assume, for example, that the vice president of finance of ABC Company
authorizes the write – off of the Br. 500 balance owed by Gemechu CO. on March1,
1997. The entry to record the write-off is:

March1 Allowance for doubtful accounts - - 500

Accounts Receivable – Gemechu CO. - - 500

Bad Debts Expense is not debited when the write-off occurs. Under the allowance
method, every bad debts write- off is debited to the allowance account and not to
Bad Debts Expense. A debit to Bad Debts Expense would be incorrect, because the
expense is recognized when the adjusting entry is made for estimated bad debts.

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A writer- off affects only balances sheet accounts. The write-off of the account
reduces both Accounts Receivable and the Allowance for Doubtful Accounts. Cash
realizable value in the balance sheet, therefore, remains the same as illustrated
below.
Before write off After write- off

Accounts receivable 200,000 199,500

Allowance for doubtful accounts 12,000 11,500
Cash realizable value 188,000 188, 000

(C) Recovery of Uncollectable Accounts

Occasionally, a company collects from a customer after has been written off as
uncollectable. Two entries are required to record the recovery of bad debts:

(1) The entry made in writing off the account is reversed to reinstate the
customer’s account.
(2) The collection is journalized in the usually manner.
To illustration, assume that on July 1, Gemechu co. pays the br 500 amounts that
had been written off on March 1. The entries are:

July Accounts receivable- Gemechu co 500

Allowance for doubtful accounts 500
(To reverse write-off of Gemechu Co accounts)

July1 Cash 500

Account receivable- Gemechu Co 500

Note that the recovery of bad debt, like the writer off of bad debt, affects only
balance sheet accounts. The net effect of the two entries above is a debit to Cash and
credit to Allowance for Doubtful Accounts for Br 500. Accounts Receivable is
debited and the Allowance to Doubtful Accounts is credit for two reasons: First, the
company made an error in judgment when it wrote off the account receivable.
Second, Gemechu Co did pay, and therefore the Accounts Receivable account
should show this collection for possible future credit purposes.

Estimating Bad Debts Expense

How does a company estimate bad debts expense?
To simplify the preceding explanation, the amount of the expected uncollectible was
given. However, in “real life” companies must estimate the amount if they use the
allowance method. Two bases are used to determine this amount.
(a) Percentage of sales and
(b) Percentage of receivables.

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Both bases are generally accepted in accounting. The choice is a management
decision. It depends on the relative emphasis that management wishes to give to
expense and revenues on one hand or to cash realizable value of the accounts
receivable on the other. The choice is whether to emphasize income statement or
balance sheet relationship.

The percentage of sales basis results in a better matching of expenses with revenues-
an income statement viewpoint. In contrast, the percentage of receivables basis
produces the better estimate of cash realizable value – a balance sheet viewpoint.
Under both bases, it is necessary to determine the company’s past experience with
bad debt losses.
Percentage of Sales
In the percentage of sales basis, management establishes a percentage relationship
between the amount of credit sales and expected losses from uncollectible accounts.
The percentage is based on past experience and anticipated credit policy.

The percentage is usually applied to either total credit sales or net credit sales of the
current year. To illustrate, assume Gonzalez Company elects to use he percentage of
sales basis and concludes that 1% of net credit sales will become uncollectible. If
net credit sales for 1996 are Bt. 800,000, the estimated bad debts expense is Br.
8000 (1% of Br 800, 000). The adjusting entry is:
Dec. 31 Bad Debts Expense - - - 8,000
Allowance for doubtful accounts - - - - - 8,000

This basis of estimating uncollectible of estimating uncollectible emphasizes the

matching of expenses with revenues. As a result, Bad Debts expense will show a
direct percentage relationship to the sales base on which it is computed. When the
adjusting entry is made, the existing balance in the allowance for doubtful
Accounts is disregarded (ignored). The adjusted balance in this account should
result in a reasonable approximation of the realizable value of the receivables. If
actual write – offs differs significantly from the amount estimated, the percentage
for future years should be modified.
Percentage of Receivables
Under the percentage receivables basis, management establishes a percentage
relationship between the amount of receivables and expected losses from
uncollectible accounts. A schedule (Often called aging schedule) is prepared, in
which customer balances are classified by length of time they have been unpaid.
Because of its emphasis on time, the analysis is often called aging the accounts
receivable.
After the accounts are aged, the expected bad debt losses are determined by
applying percentage based on past experience to the totals of each category. The
longer a receivable is past due, the less likely it is to be collected. As a result, the

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estimated percentage of uncollectible debts increases as the number of days past due
increases.
An aging schedule for Dart Company is shown in the following illustration.

Customer Total Not yet Number of days past due

Due 1 – 30 31 – 60 61 – 90 Over 90
T.E. Adert 600 300 200 100
R.C. Bortz 300 300
B.A. Carl 450 200 250
O.L. Diker 700 500 200
T.O. Ebbet 600 300 300
Others 36,950 26,200 5,200 2,450 1,600 1,500
39,600 27,000 5,700 3,000 2,000 1,900
Estimated percentage Uncollectible 2% 4% 10% 20% 40%
Total Estimated Bad Debts 2,228 540 228 300 400 760

Total Uncollectible for Dart Company (Br.2, 228) represents the amount of existing
customer claims expected to become uncollectible in the future. Thus, this amount
represents the required balance in allowance for doubtful Accounts at the balance
sheet date. Accordingly, the amount of the bad debt adjusting entry is the difference
between the required balance and the existing balance in the allowance account. For
example, if the trial balance shows Allowance for Doubtful Accounts with:

(1) A zero balance the adjusting entry would be

Dec. 31 Bad Debts Expense – 2,228
Allowance for Doubtful Accounts – 2,228
(2) A credit Balance of Br. 528, an adjusting entry for Br. 1700 (2,228 – 528) is
necessary, as shown below
Dec. 31 Bad Debts Expense - - 1,700
Allowance for Doubtful Accounts – 1,700
After the adjusting entry is posted, the accounts of the Dart Company will show:

Bad Debits expense Allowance for Doubtful Accounts

Adj. 1700 Bal. 528
Adj. 1700
Bal. 2,228

(3) A debit balance of Br. 500, an adjusting entry for Br. 2,728 (2, 228+500) is
shown below.

Dec. 31 Bad Debts Expense - - 2,728

Allowance for Doubtful accounts – 2,728

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Occasionally, the allowance account will have a debit balance prior to adjustment,
because write – offs during the year have exceeded previous provision for bad debts.
In such a case a debit balance is added to the required balance when the adjusting
entry is made. After the adjusting entry is posted, the account of Dart Company will
show

Bad Debits expense Allowance for Doubtful Accounts

Adj. 1700 Bal. 500 Adj. 2,728
Bal. 2,228

The percentage of receivables method will normally result in the better

approximation of cash realizable value. This method however, will not result in the
better matching of expense with revenues if some customers accounts are more than
one year past due. Under such circumstances, bad debts expense for the current
period would include amounts applicable to the sales of a prior period.

1.4.2 Direct Write-Off Method

Under the direct write – off method, bad debt losses are not estimated and no
allowance account is used. When an account is determined to be uncollectible, the
loss is charged to Bad Debts Expense.
To illustrate, assume that Warden CO. writes off M.E. Doran’s Br.200 balance as
uncollectible on December 12. The entry is:
Dec.12 Bad Debts Expense - - - 200
Accounts Receivable – M.E. Doran – 200
(To record write – off M.E. Doran account)
When this method is used, bad debts expense will show only actual losses from
uncollectible. Accounts receivable will be reported at its gross amount.

Under the direct write – off method, bad debts expense is often recorded in a period
different from the period in which the revenue was recorded. Thus, no attempt is
made to match bad debts expense to sales revenue in the income statement or to
show the cash realizable value of the accounts receivable in the balance sheet.
Consequently, unless bad debts losses are insignificant, the direct write – off method
is not acceptable for financial reporting purposes. The direct write – off method is
however, used for tax purposes. The Inland Revenue allows a tax deduction for
uncollectible accounts only when specific accounts receivable are deemed
uncollectible.

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 Review Exercises

1. What are the essential features of the allowance method?

2. Explain the difference between the percentage of sales and the percentage of
receivables methods?
3. What term describes the balance sheet valuation of accounts receivable less the
allowance for doubtful accounts?
4. The ledger of ABC Co at the end of the current year shows Accounts Receivable of
Br. 92,500. The analysis of the accounts in the customers’ ledger indicates
uncollectible accounts of Br.8010. (the company uses the percentage of receivable
method) Record the adjusting entry under the following assumptions.
(a) The allowance for doubtful account before adjustment has a debit balance of Br.
510
(b) The allowance for doubtful account before adjustment has a credit balance of Br.
800

5. Assume DDB Co. determines on January 23 it can’t collect Br. 520 owed to it
by its customer AKK. Co. Record the adjusting entry using the direct write-off
method.

Accounting for Notes Receivable

Overview

Companies sometimes allow customers to sign a note receivable for sales. Also,
companies sometimes ask for note to replace an account receivable, when a
customer requests additional time to pay its past-due account. If the credit period is
long, the customer usually charged interest.

This section explains the nature of and the computation of its maturity date and
interest. It also discusses the basic accounting issues of notes receivable
2.1 Promissory Notes
Credit may also be granted in exchange for a formal credit instrument known as a
promissory note.

A promissory note is a written promise to pay a specified

amount of money on demand or at a definite time.

Promissory notes may be used:

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 (1) When individuals and companies lend or borrow money
(2) When the amount of the transaction and credit period exceed normal
limits, and
(3) In settlement of accounts receivable
In a promissory note, the party making the promise to pay is called Maker; the
party to whom payment is to be made is called the payee. The payee may be
specifically identified by name or may be designated simply as the bearer of the
note.
Notes receivable gives the holder a stronger legal claim to assets than accounts
receivable. Like accounts receivable, notes receivable can be readily sold to another
party. Promissory notes are negotiable instruments (as are checks), which means
that, when sold they can be transferred to another party by endorsement.

Notes receivable are frequently accepted from customers who need to extend the
payment of an outstanding account receivable and are often from high-risk
customers. The majority of notes, however, originate from lending transaction.
The basic issues in accounting for notes receivable are the same as those for
accounts receivable
1- Recognizing notes receivable
2- Valuing notes receivable
3- Disposing of notes receivable

On the following pages, we will look at each of these issues. Before we do, though,
we need to consider two issues that did not apply to accounts receivable.
Determining the Maturity Date (Due Date)
The date a note is to be paid is called the due date or maturity date. The period of
time between the issuance date and the due date of a short-term note may be stated
in either days or months.
When the life of a note is expressed in terms of months, the due date is found by
counting the months from the date of issue. For example, the maturity date of a 3-
month note dated may 1- Is August 1 a note drawn on the last day of a month
matures on the last day of a subsequent month, that is, a July 31 note due in 2
months matures on September 30.

When the due date is stated in terms of days, it is necessary to count the exact
number of days to determine the maturity date. In counting, the date the note is
issued is omitted but the due date is included. For example, the maturity date of a
90-day note dated March 16 is computed as follows:

Term of the note - - - - - - - - - - - - - - - - - - - - - - 90

March (days) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 31
Date of note _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 16 15
Number of days remaining - - - - - - - - - - - - - - - - 75
April (days) - - - - - - - - - - - - -- - - - - - - - - - - - - - 30 10
45
May (days)- - - - - - - - - - - - - - - - - - - - - - - - - - - - 31
Maturity date, June - - - - - -- - - - - - - - - - - - - - - - 14
Computing Interest

A note that provides for payment of interest for the period between the issuance date
and the maturity date is called an interest-bearing note. If a note makes no
provision for interest, it is said to be non-interest bearing note.

The basic formula for computing interest on an interest-bearing note is:

Face value Annual Interest Time in Terms of Interest

of Note X Rate X one – year =

The interest rate specified on the note is an annual rate of interest. The time factor in
the computation above expresses the fraction of a year that the note is outstanding.
When the maturity dated is stated in days, the time factor is frequently the number
of days divided by 360. When the due date is stated in months, the time factor is the
number of months divided by 12. The computation of interest is shown below:

Terms of note Interest computation

Face x Rate x Time = Interest
Br. 730, 18%, 120 days 730 x18% x 120/360 = Br. 43.80
Br. 1,000, 15%,6 months 1000 x 15% x 6/12 = 75.00
Br 2,000, 12%, 1 year’s 2000 x 12% x 1/1 = 240.00

2.2 Recognizing Notes Receivable

To illustrate the basic entry for notes receivable assuming that ABC Company
accepted a Br. 1000, 2-month, 12% promissory note dated May 1 from XYZ
Company. Assuming that the note was written to settle an open account, the entry
for the receipt of the note is:
May 1. Note Receivable 1000
Accounts Receivable – xyz co. 1000
(To record acceptance of xyz company note)
Observe that the note receivable is recorded at its face value. No interest revenue is
reported when the note is accepted because the revenue recognition principle does
not recognize revenue until earned. Interest is earned (accrued) as time passes.

If a note is exchanged for cash, the entry is a debit to Notes Receivable and credit to
cash in the amount of the loan.
2.3 Valuing Notes Receivable
Like Accounts receivable, short – term notes receivable are reported at their Cash
(net) realizable value. The notes receivable allowance account is Allowance for
Doubtful Accounts. Valuing short-term notes receivable is the same as valuing
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accounts receivable. The computation and estimations involved in determine cash
realizable value and in recording the proper amount of bad debt expense and related
allowance are similar.
Long-term notes receivable, however, pose additional estimation problems. As an
example, we need only look at the problems a number of large U.S. banks are
having in collecting their receivables. Loans to less-developed countries are
particularly worries some. Developing countries need loans for development but
often find repayment difficult. Determining the proper allowance is understandably
difficult for these types of long-term receivables.

2.4 Disposing of Notes Receivable

Note may be held to their maturity date, at which time the face value plus accrued
interest is due. In some situations the maker of the note defaults and appropriate
adjustment must be made. In other situations, similar to accounts receivable, the
holder of the note speeds up the conversion to cash by selling the receivables.
2.4.1 Honor of Notes Receivable

A note is honored when it is paid in full at its maturity date.

For each interest-bearing note, the amount due at maturity is the face value of the
note plus interest for the length of time specified on the note.
To illustrate, assume that ABC Company accepted a Br.10, 000 90 – day, 12% note
dated October 18 from XYZ Company on settlement of open account. Record the
entry (assuming the cash is collected in the maturity date)
Oct.18 Notes Receivable 10, 000
Account Receivable 10,000
(To record acceptance of xyz co note)

If ABC Company prepares financial statements as of December 31, it would be

necessary to accrue interest (from Oct.18 up to Dec.31). In this case, the adjusting
entry would be:
Interest accrued = 10,000x 12% x 74/360 = 246.67
Dec.31 Interest Receivable 246.67
Interest Revenue 246.67
(To accrue interest)
The entry to record the honoring of xyz co. note Maturity is:

Jan. 16 Cash 10,300 .00

Notes Receivable 10,000.00
Interest Receivable 246.67

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 Interest Revenue 53.33
(To record collection of note at maturity)

Total interest earned on this note is Br. 300. This entry’s credit to interest receivable
records collection of the interest accrued in the Dec. 31 adjusting entry. The interest
earned is Br. 53.33 and reflects the ABC’s revenue from holding the note from
January 1 to January 16 of the current period.

2.4.2 Dishonor of Notes Receivable

A dishonored note is a note that is not paid in full at maturity.

A dishonored note receivable is no longer negotiable. However, the payee still has a
claim against the maker of the note. Therefore the Notes Receivable account is
usually transferred to an Account Receivable. To illustrate, assume ABC Company
a Br. 60,000, 60 days, 12% note dated July 1 on settlement of A/R had been
dishonored at maturity. To record the entry would be:

July 1 Notes Receivable – 60,000

Accounts Receivable – 60,000
(To record acceptance of note)
August 30 Accounts Receivable - - 61,200
Notes Receivable - - - - - - 60,000
Interest Revenue - - - - - - 1,200
(To record the dishonor of the note)

2.4.3 Discounting Note Receivable

Notes Receivable can be converted to cash before they mature. This can be done by
discounting notes receivable at a financial institution or bank. To illustrate, assume
that ABC co hold a Birr 3,000, 90 days 12% note, dated May 15 .On July 5, the note
is discounted at DASHEN BANK at the rate of 12% ABC’s co proceeds from the
bank are computed as follows:

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 Principal of the note - - - - - - - - - - - - - - - - - - - Br. 3,000
(+) Interest from the note (3000 x 12% x 90/360) - - - - 75
= Maturity value - - - - - - - - - - - - - - - - - - - - -- - - - 3075
(-) Bank discount (3075 x 12% x 40/360)* - - - - - - - 41
= Proceeds - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 3,034

*ABC Company held the note for 50 of the 90 days before discounting.
The entry to record discounting of the note is

August 14 Cash 3034

Interest Revenue 34
Notes Receivable 3000

It should be observed that the proceeds from discounting a note receivable might be
less than the face value. When this situation occurs, the excess of the face value over
he proceeds is recorded as interest expense. The amount and direction of the
difference between the interest rate and the discount rate will affect the result, as
will the relationship between the full term of the note and the length of the discount
period.
Notes receivable are discounted with recourse or without recourse. When a note is
discounted without recourse, the bank assumes the risk of a bad debt loss and the
original payee doesn’t have a contingent liability. A contingent liability is an
obligation to make a future payment if, and only if an uncertain future event occurs.
If a note is discounted with recourse and the original maker of the note fails to pay
the bank when it matures, the original payee of the note must pay for it. This means
a company discounting a note with recourse has a contingent liability until the bank
is paid. A company should disclose contingent liabilities in notes to its financial
statements.

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Review Exercises

1. XYZ Company has accepted a Br. 12, 000, 60 day, non – interest bearing not
dated Oct. 18 in settlement of open account. Assuming that the cash is collected in
the due date. Record the acceptance of Notes receivable and collection of cash.
2. ABC Company has accepted a Br. 11, 000, 60 – day, 12% note dated September
28 in settlement of open account. Fiscal period ends on December 31. Show the
entry to record:

(a) If the cash is collected at maturity (honored)

(b) If the note is dishonored
3. EFG co. holds a 120-day, 10% not for a Br. 20,000, dated September 5, is
discounted at WEGAGEN BANK on October 8 at the rate of 15%. Determine the
proceeds and record discounting of the note.

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