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

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If a lessee does not exercise a bargain purchase option prior to its lapse date, it means that the lessee has lost the right to purchase the asset at a lower price than its fair value. In this case, the lessee must recognize a loss equal to the difference between the purchase option price and the fair value of the asset at the lapse date. This loss should be recognized in the period in which the option expires. Therefore, option A is incorrect because the lessee cannot continue to record depreciation on an asset that it does not own. Option B is incorrect because the option can lapse if the lessee does not exercise it. Option D is incorrect because the lessee does not recognize a gain due to the lapse.

If a Lessee Does Not Exercise a Bargain Purchase Option