Sales increase sufficiently to absorb excess inventory

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Reference no: EM131213181

Mallard Company rents a warehouse on a month-to-month basis for the storage of its excess inventory. The company periodically must rent space whenever its production greatly exceeds actual sales.

For several years, the company executives have discussed building their own storage facility, but this enthusiasm wavers when sales increase sufficiently to absorb excess inventory.

What is the nature of this type of lease arrangement, and what accounting treatment should be accorded it, in your view?

Reference no: EM131213181

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