A "pop-up" store wants to use vacated space at a shopping mall to sell seasonal merchandise during the months of October, November and December. The rent is $10,000 per month, but the mall's owners are requiring a payment of $100,000 on September 1. If the space is vacated in good condition at the end of December, the owners will return $70,000 to the lessees. How should the $100,000 be financed?
A) Space is a permanent asset and should be financed with equity or long-term debt.
B) Because the lessee may rent the same or similar space in future years, they should use long-term debt or equity.
C) The space is a temporary asset and should be financed with short-term loans.
D) The space is a temporary asset and should be financed with trade credit.

Question

Quizplus · Accepted Answer

Since the lease is for only three months, it is a temporary asset and should be financed with short-term loans. It would not be appropriate to use equity or long-term debt for such a short-term lease, and trade credit is typically used for purchasing inventory, not leasing space.

A "Pop-Up" Store Wants to Use Vacated Space at a Shopping