Question: On January 1 Garcia Supply leased a truck for a
On January 1, Garcia Supply leased a truck for a four-year period, at which time possession of the truck will revert back to the lessor. Annual lease payments are $10,000 due on December 31 of each year, calculated by the lessor using a 5% discount rate. If Garcia’s revenues exceed a specified amount during the lease term, Garcia will pay an additional $4,000 lease payment at the end of the lease. Garcia estimates a 10% probability of meeting the target revenue amount. What amount, if any, should be added to the right-of-use asset and lease liability under the contingent rent agreement?
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