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:

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