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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?
A$120
B$60
C$20
D$10
Answer & Solution
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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