Question

In week 6 case, your friend was an exchange in the local magazine for use of the rental. What was the issue? how should you record this on the financial statements?

A) A: Barter transaction, B: Lease expense; C: Cash payment, D: Ignoring the transaction
B) A: Ignoring the transaction, B: Cash payment; C: Barter transaction, D: Lease expense
C) A: Lease expense, B: Barter transaction; C: Ignoring the transaction, D: Cash payment
D) A: Cash payment, B: Ignoring the transaction; C: Lease expense, D: Barter transaction

Answer 1

The transaction is a barter exchange where lease expense and advertisement service revenue should be recorded at fair value, representing the issue with this type of non-cash transaction.

Step-by-step explanation:

The issue in the week 6 case where a friend was an exchange in the local magazine for the use of the rental involves the accounting treatment of a barter transaction. While no cash changes hands in a barter transaction, the value of services exchanged must still be recognized in the financial statements. In this case, the transaction should be recorded as a Lease expense for the value of the rental provided, and an equivalent amount should be recorded as revenue for the advertisement services rendered to the magazine. It is important to properly value the services on both sides of the transaction at fair value and to disclose the nature of the transaction in the notes to the financial statements.