Question

Cool Globe Inc. entered into two transactions, as follows:

1. Purchased equipment paying $19,900 at the date of purchase and signing a noninterest-bearing note requiring the balance to be paid in five annual installments of $19,900 on the anniversary date of the contract. Based on Cool Globe's 8% borrowing rate for such transactions, the implicit interest cost is $20,045.
2. Purchased a tract of land in exchange for $11,100 cash that was paid immediately and signed a noninterest-bearing note requiring six $11,100 annual payments. The first annual payment of the note is due in one year. The fair value of the land is $62,600.

Required:
Prepare the journal entries for these transactions. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Answer
Date	Account Title	Debit($)	Credit($)
(a)	Equipment	$             79,455
	Discount on notes payable	$             20,045
	Notes payable(19,900*4)		$       79,600
	Cash		$       19,900
	(to record the purchase of equipment)
(b)	Land	$             62,600
	Discount on notes payable	$               7,100
	Notes payable(11,100*4)		$       44,400
	Cash		$       11,100
	(to record the purchase of land)