Silverman Corp. loans money to J. Cruise Company in the amount of $1,000,000. Si
ID: 2496853 • Letter: S
Question
Silverman Corp. loans money to J. Cruise Company in the amount of $1,000,000. Silverman accepts a 6% note, which requires semiannual interest payments for 8 years. The day after receiving the 6th interest payment, Silverman decides to sell the note to Needham Bank. Needham Bank is looking for an 8% return, with semiannual compounding. What is the amount that Silverman will receive on the sale of the note to Needham Bank?
Prepare the entries that Silverman and Needham Bank will make on the day the note is sold to Needham Bank.
Explanation / Answer
In books of Silverman
Bank A/c Dr $900,000
Discount on bill A/c Dr (1,000,000*(8-6)%*5years) $100,000
To Bill Receivable from J Cruise Company $1,000,000
In Books of Needham Bank
Bill Receivable from J Cruise Company A/c Dr $1,000,000
To Bank A/c Dr $900,000
To Discount on bill A/c Dr (1,000,000*(8-6)%*5years) $100,000
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