Chapter 18, Problem 18.2E

Allocation of Total Payments to Lease and Nonlease Components and Variable Consideration.

Using the same facts as included in E18-1, now assume that the variable payments cannot be less than $2,000 per year.

Required

Assuming that SouthSide allocates consideration based on relative standalone selling prices, determine the allocation of the total consideration to the computer servers and the consulting

E18-1 Allocation of Total Payments to Lease and Nonlease Components and Variable Consideration. SouthSide Services leases several computer servers from Sharpe Computing Company. The lease agreement includes consulting and training updates. The standalone prices charged by Sharpe for each separate component are $850,000 for the servers and $150,000 for the consulting and training. The lease is for 5 years with fixed payments of $300,000 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

Required

Assuming that SouthSide allocates consideration based on relative standalone selling prices, determine the allocation of the total consideration to the computer servers and the consulting and training updates.