Problem
Skysong Fashion Company enters into a lease arrangement with High point Leasing for 5 years. Skysong agrees to pay 7% of its net sales as a variable lease payment. Skysong does not pay any ?xed payments. Skysong is a highly successful company that has achieved over $1,400,000 in net sales over the last 7 years. Both Skysong and Highpoint forecast that net sales will be a much greater amount than $1,400,000 in subsequent years. As a result, it is highly certain that Skysong will make payments of at least $98,000 ($1,400,000 x 7%) each year.
What is the lease payment amount Skysong should use to record its right-of-use asset?