Sheldon Jones borrowed money by issuing two notes on March 1, Year 1. The financing transactions are described next.

1. Borrowed funds by issuing a $20,600 face value discount note to Farmers Bank. The note had an 11.50 percent discount rate, a one-year term to maturity, and was paid off on March 1, Year 2.
2. Borrowed funds by issuing a $20,600 face value, interest-bearing note to Valley Bank. The note had an 11.50 percent stated rate of interest, a one-year term to maturity, and was paid off on March 1, Year 2.

Required a. Show the effects of issuing the two notes on the financial statements using separate horizontal financial statement models. Record the transaction amounts under the appropriate categories. Record only the events occurring on the date of issue. Do not record accrued interest or the repayment at maturity. b. What is the total amount of interest to be paid on each note? c. What amount of cash was received from each note when it was issued? d-1. Calculate the effective interest rate of each note. d-2. Which note has the higher effective interest rate?