ACCA Knowledge Level Notes Payable and Interest — practice questions

Explore 2 free Notes Payable and Interest questions in ACCA Knowledge Level Financial Accounting. Open each question or exercise to read its content, reference answers and available explanation.

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Notes Payable and Interest questions and exercises with answers

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Using a 360-day year, what is the interest on a 60-day, 12% note payable with a principal of $1,000?Read the answer and worked solution →On the maturity date of a 60-day, 12% interest-bearing note for $1,000 (360-day year), what total amount of cash does the borrower pay?Read the answer and worked solution →

Worked practice questions

Using a 360-day year, what is the interest on a 60-day, 12% note payable with a principal of $1,000?

$120
$60
$20
$10

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Correct answer: C. $20

1. Use Interest = Principal \times Rate \times Time. 2. The 12% is an annual rate, so pro-rate for 60/360 of a year. 3. Compute: \$1{,}000 \times 12\% \times \frac{60}{360} = \$1{,}000 \times 0.12 \times 0.1̅6̅ = \$20. 4. Option A ($120) ignores the time pro-ration; the term is only 60 days, not a full year. _Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §5.3 "Notes Payable", p.215_

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On the maturity date of a 60-day, 12% interest-bearing note for $1,000 (360-day year), what total amount of cash does the borrower pay?

$1,000
$1,020
$1,120
$980

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Correct answer: B. $1,020

1. At maturity the borrower repays principal plus interest. 2. Interest: \$1{,}000 \times 12\% \times \frac{60}{360} = \$20. 3. Cash paid: \$1{,}000 + \$20 = \$1{,}020. 4. The entry debits Note Payable $1,000 and Interest Expense $20, crediting Cash $1,020. 5. Option D ($980) is the discounted-note proceeds, not a maturity payment. _Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §5.3 "Notes Payable", p.216_