Shamrock Fashion Company enters into a lease arrangement with Highpoint Leasing for 5 years. Shamrock...
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Shamrock Fashion Company enters into a lease arrangement with Highpoint Leasing for 5 years. Shamrock agrees to pay 5% of its net sales as a variable lease payment. Shamrock does not pay any fixed payments. Shamrock is a highly successful company that has achieved over $1,950,000 in net sales over the last 7 years. Both Shamrock and Highpoint forecast that net sales will be a much greater amount than $1,950,000 in subsequent years. As a result, it is highly certain that Shamrock will make payments of at least $97,500 ($1,950,000 5%) each year. What is the lease payment amount Shamrock should use to record its right-of-use asset?
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