On February 1, 2019, Silicon Rentals contracts with Zurgg Technology to provide 6 months of office services in exchange for 18,000 shares of Zurgg’s common stock. The contract is signed on that date and works starts immediately. Silicon appropriately determines that its performance obligation is satisfied over time and each month it receives 3,000 shares of Zurgg Technology common stock. The fair value of Zurgg’s common stock at February 28, 2019, and March 31, 2019, is $40 and $31, respectively.
Required:
1.
Journalize entries associated with recognition of service revenue for the month of February and March.
Noncash consideration:
Noncash consideration is a form of consideration other than cash which is promised by the customer, in this situation the seller includes the “fair value” of the noncash consideration at the commencement of the contract in the transaction price.
Journal entry:
Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.
Accounting rules for Journal entries:
Prepare journal entries:
Date | Account title and explanation | Debit ($) | Credit ($) |
February 28,2019 | Available-for-sale investment | 120,000 | |
Service revenue (1) | 120,000 | ||
(To record the service revenue) |
Table (1)
Date | Account title and explanation | Debit ($) | Credit ($) |
March 31,2019 | Available-for-sale investment | 93,000 | |
Service revenue (2) | 93,000 | ||
(To record the service revenue) |
Table (2)
2.
State the manner in which the Company S will ascertain fair value.
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