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Module 2f Discounting
Module 2f Discounting
Module 2f Discounting
Intermediate
Accounting 1
Acctg.
Receivable
Discounting
by: Prof. Ernie D. Tano, CPA, MBA
Acctg
Principal 1,000,000
Interest (1,000,000 x 12% x 180/360) 60,000
Maturity Value 1,060,000
Observe that the interest must be for the “full term” of the note in determining the maturity
value.
Acctg.
Discount which is equal to the “maturity value times discount rate times discount period”.
The discount period is the remaining term of the note on the date of discounting
In counting, “exclude the first day but include the last day.”
Acctg.
The accrued interest receivable is interest earned from July 1 to the date of discounting on
August 30, or 60 days.
Acctg.
The difference between the net proceeds from discounting and the carrying amount of the
note receivable is recognized as gain or loss.
Acctg.
Journal entry
Cash 1,007,000
Loss on note receivable 13,000
Note receivable 1,000,000
Interest income 20,000
The note receivable account is credited directly because the sale of the note receivable is
without recourse or absolute.
The interest income is credited for the actual interest earned on the date of discounting
Acctg.
Principal 2,400,000
Interest (2,400,000 x 12% x 6/12) 144,000
Maturity Value 2,544,000
Discount (2,544,000 x 15% x 5/12) (159,000)
Net proceeds 2,385,000
Principal 2,400,000
Accrued interest receivable (2,400,000 x 12% x 1/12) 24,000
Carrying amount of note receivable 2,424,000
The accrued interest receivable is for one month from February 1 to the date of
discounting on March 1
Net proceeds 2,385,000
Carrying amount of note receivable 2,424,000
Loss on note receivable discounting ( 39,000)
Acctg.
b. Secured borrowing
Acctg.
End of Presentation.
Reference:
Intermediate Accounting 1a, 2019 Edition
by: Zeus Vernon B. Millan