A bargain purchase option is a good indicator that an arrangement should be accounted for as an operating lease.

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A bargain purchase option is a provision in a lease contract that allows the lessee to purchase the leased asset at a price that is significantly lower than its fair value. If the bargain purchase option is reasonably certain to be exercised, then the lease arrangement should be accounted for as a finance lease instead of an operating lease.

A Bargain Purchase Option Is a Good Indicator That an Arrangement