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What is the lease payment amount sanders should use

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Question

Sanders Fashion Company enters into a lease arrangement with Highpoint Leasingfor 5 years. Sanders agrees to pay 4% of its net sales as a variable lease payment.

Sanders does not pay any fixed payments. Sanders is a highly successful company that has achieved over $1,000,000 in net sales over the last 7 years.

Both Sanders and Highpoint forecast that net sales will be a much greater amount than $1,000,000 in subsequent years. As a result, it is highly certain that Sanders will make payments of at least $40,000 ($1,000,000 × 4%) each year.

What is the lease payment amount Sanders should use to record its right-of-use asset?

Reference no: EM132318443

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