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30 July, 08:39

On September 1, Sky Mountain Co. borrowed $52,000 on a 6%, 9-month note payable to Coast National Bank. Given no previous adjusting entries have been recorded, Sky Mountain's adjusting entry four months later at December 31 would include a:

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  1. 30 July, 12:04
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    Answer: Sky mountain's adjusting entry four months later will be

    = $53,300

    Explanation:

    Using simple interest formula with future amount

    A = p (1 + rt)

    A = amount (future value) = ?

    p = principal (present value) =

    $52,000

    r = rate = 6% = 0.06

    t = time in years, but the 9months note has used 4months. This means that the note has 5months left.

    Thus: t = 5months = 5/12years (converted to years)

    A = 52,000 [1 + (0.06 * 5/12) ]

    A = 52,000 [ 1 + 0.025]

    A = 52,000 [ 1.025]

    A = $53,300

    As the entry amount after four months
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