On January 1, Porter Moving and Storage 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 $30,000 due on December 31 of each year, calculated by the lessor using a 5% discount rate. If Porter's revenues exceed a specified amount during the lease term, Porter will pay an additional $12,000 lease payment at the end of the lease. Porter estimates a 60% probability of meeting the target revenue amount. What amount, if any, should be added to the right-of-use asset and lease payable under the contingent rent agreement?
A) No additional amount should be added.
B) An additional $6,000 should be added.
C) An additional $7,200 should be added.
D) An additional $12,000 should be added.

Question

Quizplus · Accepted Answer

If the amounts of future lease payments are uncertain due to contingencies or otherwise, we don't consider them as part of the lease payments.

On January 1, Porter Moving and Storage Leased a Truck