On March15,2011,Birkshire Energy obtained a nine-month working capital loan from

Question

On March15,2011,Birkshire Energy obtained a nine-month working capital loan from the First National Bank of Oglesby. The face amount ofthe note signed by the treasurer was $300,000. The interest rate charged by the bank was 10 percent. The bank made the loan on a discount basis. (Round your final answers to the nearest dollar).

(a.) Calculate the loan proceeds made available to Birkshire.

(b.) Calculate the amount of interest expense related to this loanduring the six months ended June 30, 2011.

(c.) What is the amount of the current liability related to this loan to be shown in the June 30, 2011 balancesheet?

Explanation / Answer

Proceeds = Face amount - interest

interest = 300000*10*9/1200 = 22500

proceeds = 277750

b)

he note is dated March 15, 2014, or 3.5 months before June 30,

Interest = 300000*10%*3.5/12 = 8750

c)

Current liability = Face amount less discount balance

Current liability = 300000 - (8750+22500) = 268750

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