Question

a. The amount of each lease payment will be increased by the option price. b. The lessee must decrease the present value of the lease payments by the present value of the option price. c. There is no impact as the option does not enter into the transaction until the end of the lease term. d. The lessee must increase the present value of the lease payments by the present value of the option price.

Answer 1

Answer:

d). The lessee must increase the present value of the minimum lease payments by the present value of the option price.

Explanation:

The bargain purchase option refers to the clause mention in a lease contract or agreement which provides the lessee $\text{to purchase}$ or buy a leased asset from a person at the end of the $\text{lease period}$ at a price which is substantially below its $\text{fair market value}$.

In bargain purchase option, the present value of a $\text{minimum lease payments}$ can be increased by bargain purchase option. So the lessee must $\text{increase}$ the present value of $\text{minimum lease payments}$ by the present value of the $\text{option price.}$ This is the impact of the bargain purchase option on the present value of $\text{minimum lease payments}$.

Thus, the correct option is (d).