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The lease of the combustion generator by Big Bear Electricity from Goliath Co includes three provisions that we need to examine to determine whether they must be included in the “minimum lease payment” as identified in ASC 840. If perhaps any of all those conditions do not exist, then this maximum amount that the lessee could be needed to pay underneath the default agreement shall be a part of minimum rent payments intended for purposes of applying passage 840-10-25-1] The initially condition about the arrears covenant provision being normal does exist due to the notice stating that “this is known as a customary supply in leasing arrangements”.
The company offers positive cashflow and is in compliance with all its debts covenants, which in turn supports Big Bear’s idea that the possibility of default is low. Hence conditions 2 and some are attained. Condition several, which involves established criteria in the case of a default, would not seem to have been completely met.
As not all the conditions have been achieved, the arrears payment covenant shall be contained in the minimum lease contract payment.
