Instructions On February 1, 2017, Silicon Rentals contracts with Zurgg Technolog
ID: 2588860 • Letter: I
Question
Instructions On February 1, 2017, 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, 2017, and March 31, 2017, is $40 and $31, respectively. Required: 1. Prepare Silicon's journal entries related to recognize service revenue for February and March. 2. Assume that Silicon could not estimate the fair value of Zurgg's common stock. How would Silicon determine fair value?Explanation / Answer
1)
Recognising service revenue for February:
Investment in Common stock Dr 120000 (40*3000)
Service revenue Cr 120000
Recognising service revenue for March:
Investment in Common stock Dr 93000 (31*3000)
Service revenue Cr 93000
2)
If the common stock of Zurgg Technology are listed on stock exchange then listed price can be taken as fair value. If the common stock of Zurgg Technology are not listed on any stock exchange then Silicon rental can calculate the book value per share of Zurrgg Technology from the balancesheet of company. Book Value can be calculated by restating the figures of balancesheet and formula for book per share is "Total networth of company" divided by "Total number of shares outstanding".