BUSN 212 TEST #2
Part 1 True/False 4 points each possible 28 points
1. ______ An interest-beating note is a loan in which the lender deducts interest from the amount
loaned before the money is advanced to the borrower
2. ______ The amount borrowed is equal to the face amount of the note on an interest bearing
note payable.
3. ______ The amount of money a borrower receives from the lender is called the discount rate.
4. ______ The proceeds from discounting a $20,000, 60-day note payable at 6% is $20,200.
5. ______ Payroll taxes are based on the employee's net pay.
6. ______ When a borrower receives the face amount of a discounted note less the discount, the
amount is known as proceeds
7. ______ A current liability is a debt that is reasonably expected to be paid
between 6 months and 18 months
Part II Multiple Choice 5 points each possible 20 points
1. Assuming a 360-day year, the interest charged by the bank, at the rate of 6%, on a 90-day,
discounted note payable of $100,000 is
a. $6,000
b. $1,500
c. $500
d. $3,000
2. On July 8, Jones Inc. issued an $80,000, 6%, 120-day note payable to Miller Company. Assume that
the fiscal year of Jones ends on July 31. Using the 360-day year, what is the amount of interest
expense recognized by Jones in the current fiscal year?
a. $700
b. $4,200
c. $307
d. $1,400
3. Chang Co. issued a $50,000, 120-day, discounted note to Guarantee Bank. The discount rate is
6%. Assuming a 360-day year, the cash proceeds to Chang Co. are
a. $49,750
b. $47,000
c. $49,000
d. $51,000
4. Anderson Co. issued a $50,000, 60-day, discounted note to National Bank. The discount rate is 6%
At maturity, assuming a 360-day year, the borrower will pay
a. $53,000
b. $50,500
c. $50,000
d. $49,500
