CLFP ANSWERS AND QUESTIONS SET A+
✔✔What are all of the variables in a PV calculation - ✔✔(a) # of payments (b) payment
amount (c) interest rate (d) compounding frequency (e) residual
✔✔Gross Margin - ✔✔Gross profit on sales (net sales - cost of goods sold) / Total sales
revenue. Steady or increasing trends are positive
✔✔Net Profit Margin - ✔✔Net income (after taxes) / Net sales (after returns and
allowances). Note: with Sub S corps and closely held corps, net profits after taxes and
distributions can be artificially low as shareholders take out large distributions. Steady
increasing percentage is positive.
✔✔Total Liabilities to Net Worth - ✔✔= Total liabilities / Net worth (owners equity).
Relationship of borrowed funds to owners capital. An increasing trend suggests liquidity
problems.
✔✔Total Liabilities to Tangible Net Worth - ✔✔= Total liabilities / Tangible net worth (net
worth - intangible assets). Higher number suggests liquidity problems.
✔✔Accounts Receivable Turn Day Ratio (Days Receivable) - ✔✔= Days in period / (net
sales / accounts receivable). The average times in days receivables are outstanding.
Measures delinquencies.
✔✔What is the difference between tangible and intangible assets - ✔✔Tangible assets
are things you can touch like buildings, land, inventory, and equipment. Intangible
assets are non-physical, like patents, trademarks, copyrights, and goodwill.
✔✔S Corporation - ✔✔All profits and losses flow to the individual shareholders and are
reflected in their personal federal income taxes.
✔✔Estimated Economic Life - ✔✔At the inception of the lease, the estimated remaining
period during which the property is expected to be usable for its intended purpose.
, ✔✔Bargain Purchase Option - ✔✔A provision allowing the lessee to purchase the
leased property for a price sufficiently lower than the expected FMV.
✔✔Bargain Renewal Option - ✔✔A provision allowing the lessee to renew the lease for
a rental sufficiently lower than the fair rental at the date the option is exercised.
✔✔Executory Costs - ✔✔Cost such as insurance, maintenance and taxes incurred for
the leased property, whether paid by the lessor or lessee.
✔✔Fair Value of Leased Property - ✔✔The price the property could be sold for in an
arm's length transaction.
✔✔Implicit Interest Rate - ✔✔Discount rate that when applied to the minimum lease
payments results in a present value equal to the fair value of the leased property at
lease inception.
✔✔Non-cancelable Lease - ✔✔A lease is cancelable only upon (a) occurrence of some
remote contingency (b) permission of the lessor (c) Entrance into a new lease with
same lessor, or (d) payment of a penalty.
✔✔At-risk Rules - ✔✔Provisions in IRS code, requiring a party seeking to claim benefits
under the tax code (interest deductions & depreciation) must be at risk for certain
specified amounts in relationship to such desired tax benefits.
✔✔Consideration - ✔✔The value given for a contract, i.e. money, property, a promise,
forbearance etc.
✔✔Half-year Convention - ✔✔An assumption, for income tax and depreciation
purposes, that all equipment placed in service during a tax year is placed in service at
the mid-point of the tax year.
✔✔Indemnity - ✔✔An agreement to reimburse another for a loss.
✔✔Interim Rent - ✔✔A charge for use of equipment from delivery date until the base
term of the lease commences.
✔✔Joint and Several Liability - ✔✔A liability involving two or more parties in which each
party is liable individually and independently as well as together.
✔✔Loss Payee - ✔✔A party entitled to receive proceeds from an insurance settlement
arising in connection with a covered casualty or loss.
✔✔Pledge - ✔✔A bailment of property to creditor to secure payment of debt or
performance of some obligation.
✔✔What are all of the variables in a PV calculation - ✔✔(a) # of payments (b) payment
amount (c) interest rate (d) compounding frequency (e) residual
✔✔Gross Margin - ✔✔Gross profit on sales (net sales - cost of goods sold) / Total sales
revenue. Steady or increasing trends are positive
✔✔Net Profit Margin - ✔✔Net income (after taxes) / Net sales (after returns and
allowances). Note: with Sub S corps and closely held corps, net profits after taxes and
distributions can be artificially low as shareholders take out large distributions. Steady
increasing percentage is positive.
✔✔Total Liabilities to Net Worth - ✔✔= Total liabilities / Net worth (owners equity).
Relationship of borrowed funds to owners capital. An increasing trend suggests liquidity
problems.
✔✔Total Liabilities to Tangible Net Worth - ✔✔= Total liabilities / Tangible net worth (net
worth - intangible assets). Higher number suggests liquidity problems.
✔✔Accounts Receivable Turn Day Ratio (Days Receivable) - ✔✔= Days in period / (net
sales / accounts receivable). The average times in days receivables are outstanding.
Measures delinquencies.
✔✔What is the difference between tangible and intangible assets - ✔✔Tangible assets
are things you can touch like buildings, land, inventory, and equipment. Intangible
assets are non-physical, like patents, trademarks, copyrights, and goodwill.
✔✔S Corporation - ✔✔All profits and losses flow to the individual shareholders and are
reflected in their personal federal income taxes.
✔✔Estimated Economic Life - ✔✔At the inception of the lease, the estimated remaining
period during which the property is expected to be usable for its intended purpose.
, ✔✔Bargain Purchase Option - ✔✔A provision allowing the lessee to purchase the
leased property for a price sufficiently lower than the expected FMV.
✔✔Bargain Renewal Option - ✔✔A provision allowing the lessee to renew the lease for
a rental sufficiently lower than the fair rental at the date the option is exercised.
✔✔Executory Costs - ✔✔Cost such as insurance, maintenance and taxes incurred for
the leased property, whether paid by the lessor or lessee.
✔✔Fair Value of Leased Property - ✔✔The price the property could be sold for in an
arm's length transaction.
✔✔Implicit Interest Rate - ✔✔Discount rate that when applied to the minimum lease
payments results in a present value equal to the fair value of the leased property at
lease inception.
✔✔Non-cancelable Lease - ✔✔A lease is cancelable only upon (a) occurrence of some
remote contingency (b) permission of the lessor (c) Entrance into a new lease with
same lessor, or (d) payment of a penalty.
✔✔At-risk Rules - ✔✔Provisions in IRS code, requiring a party seeking to claim benefits
under the tax code (interest deductions & depreciation) must be at risk for certain
specified amounts in relationship to such desired tax benefits.
✔✔Consideration - ✔✔The value given for a contract, i.e. money, property, a promise,
forbearance etc.
✔✔Half-year Convention - ✔✔An assumption, for income tax and depreciation
purposes, that all equipment placed in service during a tax year is placed in service at
the mid-point of the tax year.
✔✔Indemnity - ✔✔An agreement to reimburse another for a loss.
✔✔Interim Rent - ✔✔A charge for use of equipment from delivery date until the base
term of the lease commences.
✔✔Joint and Several Liability - ✔✔A liability involving two or more parties in which each
party is liable individually and independently as well as together.
✔✔Loss Payee - ✔✔A party entitled to receive proceeds from an insurance settlement
arising in connection with a covered casualty or loss.
✔✔Pledge - ✔✔A bailment of property to creditor to secure payment of debt or
performance of some obligation.
