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Calculate the initial cash proceeds at issuance

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Question - John Wood is negotiating a bank loan for his company, Wood, Inc., of $12,000 for 90 days. The loan (and note) will be issued on November 16. The bank's current interest rate for similar loans is 8%.

Calculate the initial cash proceeds at issuance and the interest expense to be accrued and reported on the loan in Wood's calendar year income statement under each of the following assumptions:

a. Wood signs a note for $12,000. Interest is deducted in calculating the proceeds turned over to him.

b. Wood signs a note for $12,000 and receives that amount. Interest is to be paid at maturity.

Reference no: EM132737229

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