Understanding Amortization of Computers in Bargain Purchase Scenarios

When it comes to accounting for computers due to bargain purchase options, the question can be a bit tricky, right? Let’s break it down. Company A needs to figure out how to handle amortization properly, and it boils down to a key term you may have heard - economic life.

Imagine you just snagged a fantastic deal on a new laptop, way below market value. Feels great, doesn’t it? Well, in accounting, that’s similar to what happens in a bargain purchase scenario. When Company A acquires its computers, they’re getting solid assets for less than what they’re actually worth. So how should they account for this? The best answer is to amortize using the economic life of the computers.

Sure, the lease term might suggest a shorter period for amortization, but this could throw a wrench in how expenses are matched up with economic benefits. You see, the economic life of an asset is the estimated period it’s going to be useful to the company. It’s almost like the potential or lifespan of that computer - longer than the lease, right? And guess what? By amortizing based on economic life, Company A aligns its expenses with the real benefit derived from those assets in its financial statements.

Think of it this way: every time the computers support operations, they’re contributing value. So why not reflect that accurately? Treating the amortization over the economic life means documenting the actual usage and the benefit each period, in keeping with accounting principles. This is about matching expenses to benefits, an essential concept in accounting that helps depict a more transparent financial picture.

Now, you might be asking yourself, why does this even matter? Well, when a company accurately reflects its amortization on financial statements, stakeholders (like investors or auditors) can see a clear picture of how assets contribute to the business. Isn't that what we all want? A straightforward portrayal of performance?

To summarize, Company A should go with the option to amortize using the economic life of the computers. It’s like telling the true story of how valuable those computers will be over time, rather than letting a possibly misleading lease term shape the narrative. Keeping it real is definitely the way to go!

With this understanding, students preparing for the WGU ACCT3650 D105 Intermediate Accounting III Practice Exam can feel more confident in tackling questions around amortization for computers under bargain purchase options. At the end of the day, mastering these concepts not only prepares you for the exam, but also lays a solid foundation for your future accounting endeavors.