Appendix A: Complexities in Accounting for Lease Transactions
Sidekick Services
Sidekick Services leases several computer servers from Lycoming Computing Company. The lease agreement includes consulting and training updates. The standalone prices charged by Lycoming for each separate component are $750,000 for the servers and $250,000 for the consulting and training updates. The lease is a 5-year lease with fixed payments of $400,000 per year. There are also variable payments required amounting to $7,000 per year, on average, based on the metered usage of the servers. There is no minimum charge included in the contract.
-Using the above information and assuming that Sidekick allocates consideration based on relative standalone selling prices, determine the allocation of the total consideration to the computer servers and the consulting and training services.

Question

Quizplus · Accepted Answer

The Answer of Appendix A: Complexities in Accounting for Lease Transactions
Sidekick Services
Sidekick Services leases several computer servers from Lycoming Computing Company. The lease agreement includes consulting and training updates. The standalone prices charged by Lycoming for each separate component are $750,000 for the servers and $250,000 for the consulting and training updates. The lease is a 5-year lease with fixed payments of $400,000 per year. There are also variable payments required amounting to $7,000 per year, on average, based on the metered usage of the servers. There is no minimum charge included in the contract.
-Using the above information and assuming that Sidekick allocates consideration based on relative standalone selling prices, determine the allocation of the total consideration to the computer servers and the consulting and training services.