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CLFP EXAM - Financial and Tax Accounting for Leases Questions & Answers
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CLFP EXAM - Financial and Tax Accounting for Leases Questions & Answers
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CLFP EXAM - Financial and Tax Accounting forLeases Questions & Answers
How is Lessor's Tax Treatment different if a lease DOES pass "burden of proof"? Correct Ans-
Treated as True Lease. Rental payments are recognized as income and the leased asset is
capitalized as an asset and depreciated. Must use tax, not book, depreciation method (i.e.
useful lives)
What is Modified Accelerated Cost Recovery System (MACRS) Correct Ans-Enacted as part of
Tax Reform Act of 1986, it is the predominate method for tax basis depreciation for assets (>
1987).
What is IRS Section 179? Correct Ans-1.) Allows immediate deductions for certain amounts
of assets during the year of purchase.
2.) Allowed on both new & used.
3.) Intended to help small business and is phased out after a certain $ level of assets cost
4.) deduction amounts and $ levels for phase out have changed over the years.
5.) $500,000 level.
6.) Phases out $2MM to $2.5MM in assets purchased
What is Bonus Depreciation? Correct Ans-1.) Created by Job Creation and Worker Assistance
Act of 2002
2.) Provides beneficial depreciation acceleration for lessors.
3.) 30% - 100% upfront depreciation in year of purchase followed by MACRS (vary over years)
,4.) only available on NEW equipment
5.) 50% extened through 2019
Where is Personal Property Tax Assessed? Correct Ans-Equipment leasing companies are
subject to sales & PPT requirements in the jurisdiction of where the equipment is located.
Are "net leases" treated differently from tax perspective? Correct Ans-Some lessor believe
that they can delegate tax liability to the lessee via their lease agreement. Most government
agencies don't agree.
Why is sales tax complicated? Correct Ans-1.) require monthly, quarterly, semi annual or
annual
3.) payment may be due upfront or over the stream
4.) certain equipment is exempt for sales tax
5.) sales tax vary per jurisdiction and update periodically
What is the process for filing ppt? Correct Ans-1.) lessor must pay if it held equipment on
assessment date - therefore shroud include estimate in payoff requests.
2.)Multi-step. First rendition filed in taxing jurisdiction where equipment is located
3.) includes equipment type, cost, purchase date & location
4.) Taxing jurisdiction responds by sending a assessment notice to leasing company (asset
adjusted for depreciation).
5.) A time period is provided to protest
, 6.) After review period, tax jurisdiction issues a bill
7) once billed, lessor may invoice lessee to collect
What is a primary goal of the accounting profession? Correct Ans-Consistent treatment of
like transactions to allow clarity in presentation and consistency in interpretation of financial
statements prepared by various individuals or entities.
How did APB (Accounting Principals Board) fail? Correct Ans-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? Correct Ans-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? Correct Ans-Approved by FASB in 7/2009, a
single source of of authoritative US accounting and reporting standards
What now governs lease accounting? Correct Ans-ASC 840
What is a Bargain Renewal Option? Correct Ans-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.
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