CLFP EXAM - Financial and Tax Accounting for Leases Questions & Answers Verified 100% Correct!!
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Course
CLFP - Financial and Tax Accounting for Lease
Institution
CLFP - Financial And Tax Accounting For Lease
What is Value of Leased Property? - ️️The price at which the property could be sold
at an arm's length transaction by unrelated parties.
1.) normal selling price, net volume discounts, for a lessor who manufacturer/dealer
2.) Cost, net volume discounts for a lessor that is note a manufacture...
CLFP EXAM - Financial and Tax
Accounting for Leases
What is Value of Leased Property? - ✔️✔️The price at which the property could be sold
at an arm's length transaction by unrelated parties.
1.) normal selling price, net volume discounts, for a lessor who manufacturer/dealer
2.) Cost, net volume discounts for a lessor that is note a manufacturer or dealer.
What is a Bargain Renewal Option? - ✔️✔️a provision allowing lessee, at his option, to
renew the lease for a rental sufficiently lower than the expected fair value of the
property at the date the option becomes excercisable. It is reasonably assured the
renewal option will be exercised.
How did APB (Accounting Principals Board) fail? - ✔️✔️Created Opinion #5 (Reporting
of Leases in Financial Statements of Lessees) and Opinion #7 (Accounting for Leases
in Financial Statements for Lessors) that ha different opinions and left lessors & lessees
with conflicting rules.
What was FASB 13? - ✔️✔️Financial Accounting Standards Board issued "Accounting
for Leases" which was a comprehensive set of standards to be followed by lessors and
lessees in accounting lease transactions.
What is Accounting Standards Codification? - ✔️✔️Approved by FASB in 7/2009, a
single source of of authoritative US accounting and reporting standards
What now governs lease accounting? - ✔️✔️ASC 840
What is a Bargain Purchase Option? - ✔️✔️a provision allowing lessee, at his option,
to purchase the property for a price sufficiently lower than the expected fair market
value of the property at the date the option becomes excercisable. It is reasonably
assured the purchase option will be exercised.
What is a primary goal of the accounting profession? - ✔️✔️Consistent treatment of
like transactions to allow clarity in presentation and consistency in interpretation of
financial statements prepared by various individuals or entities.
What are Contingent Rentals? - ✔️✔️Rentals that represent increases or decreases in
the lease payments made that result from changes in the factors on which lease
payments are based occurring subsequent to the inception of the lease. Increases may
occur due to increased construction cost or indexed interest rates.
, What is Economical Useful Life of Leased Property? - ✔️✔️At the inception of the the
lease, the estimated remaining period during which the property is expected to be
economically usable for its intended purpose by one or more users. This may be
impacted by usage, technology and deterioration. Independent of lease term.
What is Residual Value of Leased Property? - ✔️✔️Estimated fair value of the lease
property at the end of the lease.
What is Executory Costs? - ✔️✔️The costs such as insurance, maintenance and taxes
incurred for the leased property, whether paid by lessor or lessee. Also include costs
paid by lessee as guarantor.
What is Implicit Interest Rate? - ✔️✔️The discount rate that, when applied to the
minimum lease payments cause the aggregate present value at the beginning of the
lease term to be equal to the fair value of the leased property to the lessor at the
inception of the lease.
What is Inception of the Lease? - ✔️✔️The date lease commitment.
What is Incremental Borrowing Rate? - ✔️✔️The rate, at the inception of the lease, the
lessee would have incurred to borrow, under like terms, the funds necessary to
purchase the lease asset.
What is Initial Direct Cost (IDC)? - ✔️✔️Costs incurred by lessor that are
1) to originate the lease in transactions with independent third parties that are required
and would have occurred regardless of leasing
2.) certain cost incurred by the lessor
What is a Lease? - ✔️✔️An agreement conveying right to use property, plant or
equipment for stated period of time and rental payment.
What is Lease Term? - ✔️✔️The fixed, non cancel-able term of the lease plus:
1.) period covered by bargain renewal options
2.) period covered by a renewal when a significant penalty for failure to renew exists;
3.) Ordinary renewal periods
4.) Renewal periods that precede a bargain purchase option.
5.) Renewal periods that are at the option of the lessor
6.) does not exceed term beyond when the bargain purchase option can be exercised.
What is Maximum Lease Payments? - ✔️✔️All payments the lessee is obligated to
make under the lease agreement (outside of executory costs)
1.) minimum rentals
2.) Lessee guarantee of the residual value
3.) Penalties for failure to renew.
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