Barr Corp. is the lessee in a lease that contains a purchase option. Under the new ASU, Barr will consider the exercise price to be an additional cash payment if:
A)Barr has a "significant economic incentive" to exercise the option.
B)The exercise of the option is "reasonably assured."
C)The exercise price is reasonably determinable.
D)The exercise price never is considered to be an additional cash payment.

Question

Quizplus · Accepted Answer

According to the new ASU, the exercise price of a purchase option in a lease would be considered an additional cash payment if the lessee has a "significant economic incentive" to exercise the option. This means that if the exercise of the option would result in a significant financial benefit to the lessee, then the exercise price would be treated as an additional cash payment rather than being included in the overall lease accounting. Therefore, choice A is the best answer.

Barr Corp Is the Lessee in a Lease That Contains a a Purchase