On January 1 of Year 1, Yogart Inc. signed a 10-year lease for its retail outlet. The lease payments, paid semiannually each January 1 and July 1, are based upon semiannual sales and equal 5% of sales with a semiannual sales minimum of $2,500,000. Based on the previous three years, average sales per semiannual period are $3,000,000. Yogart's incremental borrowing rate is 6% and it is unaware of the rate implicit in the lease. The lease is classified as an operating lease by Yogart. The first semiannual payment of $125,000, calculated as 5% of $2,500,000, is due immediately on January 1 of Year 1. Yogart's accounting year ends June 30.

On January 1 of Year 1, Yogart Inc. signed a 10-year lease for its retail outlet. The lease payments, paid semiannually each January 1 and July 1, are based upon semiannual sales and equal 5% of sales with a semiannual sales minimum of $2,500,000. Based on the previous three years, average sales per semiannual period are $3,000,000. Yogart's incremental borrowing rate is 6% and it is unaware of the rate implicit in the lease. The lease is classified as an operating lease by Yogart. The first semiannual payment of $125,000, calculated as 5% of $2,500,000, is due immediately on January 1 of Year 1. Yogart's accounting year ends June 30.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 17P

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