Question

On September 1, Sky Mountain Co. borrowed $54,000 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 1

Sky Mountain's adjusting entry four months later at December 31 would include:

Debit Interest expense $1,080

Credit Interest Payable $1,080

Step-by-step explanation:

Sky Mountain Co. borrowed $54,000 on a 6% note payable to Coast National Bank.

The amount of interest for 1 year = $54,000 x 6% = $3,240

The amount of interest for 1 month = $3,240/12 = $270

From September 1 to December 31, in Sky Mountain Co.

The amount of interest expense = $270 x 4 = $1,080

Sky Mountain's adjusting entry at December 31:

Debit Interest expense $1,080

Credit Interest Payable $1,080