Cool Globe Inc

question 69

Essay

Cool Globe Inc. entered into two transactions, as follows:
1. Purchased equipment paying $20,000 down and signed a noninterest-bearing note requiring the balance to be paid in four annual installments of $20,000 on the anniversary date of the contract. Based on Bright Light's 12% borrowing rate for such transactions, the implicit interest cost is $19,253.
2. Purchased a tract of land in exchange for $10,000 cash down payment and a noninterest-bearing note requiring five $10,000 annual payments, with the first annual payment in one year. The fair value of the land is $46,000.
Required:
Prepare the journal entries for these transactions.

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Definitions:

Direct Labor-Hours

The total hours worked by employees directly involved in the production process.

Fixed Manufacturing Overhead

The static expenses related to the production process that do not vary with the level of output, such as salaries and rental costs of facilities.

Budgeted Production

The quantity of products or services that a company plans to produce during a specific period, based on forecasts.

Direct Material Requirements

The total amount of direct materials needed to meet production goals, considering both current inventory levels and future procurement needs.