Which statement about Bargain Purchase Option is true?

Which statement about Bargain Purchase Option is true?

• A. Purchase price is sufficiently lower than expected fair market value at exercise date; reasonably assured to exercise.
• B. Renewal option at a discount.
• C. Lease ends with no purchase option.
• D. The option is only for the lessor.

Answer: (A)

A bargain purchase option means the lessee can buy the asset for a price that is substantially below its expected fair value at the date the option becomes exercisable, making exercise reasonably assured. Because the option is so favorable and likely to be exercised, the lease is treated as a finance lease from inception rather than an operating lease. The statement describes this scenario directly: the purchase price is much lower than the expected fair value at exercise, and exercise is reasonably assured. The other options describe a renewal option, a lease with no purchase option, or an option that benefits the lessor, none of which define a bargain purchase option.

A bargain purchase option means the lessee can buy the asset for a price that is substantially below its expected fair value at the date the option becomes exercisable, making exercise reasonably assured. Because the option is so favorable and likely to be exercised, the lease is treated as a finance lease from inception rather than an operating lease. The statement describes this scenario directly: the purchase price is much lower than the expected fair value at exercise, and exercise is reasonably assured. The other options describe a renewal option, a lease with no purchase option, or an option that benefits the lessor, none of which define a bargain purchase option.