Lease Term includes renewal periods that precede a bargain purchase option.

• A. True
• B. False
• C. Only if renewal is approved by the lessee
• D. Only if there is no bargain purchase option

Answer: (A)

Lease term is not just the initial noncancelable period; it extends to include renewal periods if the lessee is reasonably certain to exercise those options. A bargain purchase option at the end of the lease makes it more likely that the lessee will continue the arrangement or purchase the asset, which can make renewal periods that occur before that option reasonably certain to be exercised. Because of that, those renewal periods are included in the lease term for accounting purposes. If the renewal options were not reasonably certain to be exercised, they would not be included. The presence of a bargain purchase option by itself doesn’t negate the renewal periods; it often supports extending the term to cover them.