If a Lessee Does Not Exercise a Bargain Purchase Option

question 178

Multiple Choice

If a lessee does not exercise a bargain purchase option prior to its lapse date,the:

• A) lessee continues to record depreciation on the lease asset because it was assumed from the beginning that the lessee would retain ownership of the asset.
• B) bargain purchase option cannot lapse because this option was included in computing the annual rental amounts.
• C) lessee recognizes a loss due to the lapse.
• D) lessee recognizes a gain due to the lapse.

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Definitions:

Par Common Stock

The face value of common stock as designated in the company's charter, not necessarily its market value.

Dividends

Dividends are a portion of a company's earnings that are distributed to shareholders as a reward for their investment.

Depreciation Expense

The allocation of the cost of a tangible fixed asset over its useful life, reflecting the asset's consumption, wear and tear, or obsolescence.

Interest Expense

Expenses related to borrowed capital for an entity, which includes loans, bonds, and lines of credit.