Healthcare Finance Exam 2 Reading
Questions
Operating Lease - correct answer ✔✔a lease whose term is much shorter than the expected useful life of
the asset being leased.
Term: shorter
Maintenance? yes
Amortized? No (fully paid off)
Cancelation Cause? Yes
Financial Lease - correct answer ✔✔A lease agreement that has a term approx. equal to the expected
useful life of the leased asset.
Term: Equal
Maintenance? No
Amortized? Yes
Cancelation cause? No
What is a sale-leaseback? - correct answer ✔✔Special type of financial lease, often used with real estate,
which can be arranged by a user who currently owns some asset. User sells the asset to another party
and simultaneously executes an agreement to lease the property for a stated period under specific
terms.
Per procedure payment term - correct answer ✔✔a lease agreement in which the lessee pays a fee to
the lessor each time the equipment is used, as opposed to paying a fixed, monthly payment. per click
lease
Conventional Term - correct answer ✔✔fixed payments are made to the lessor periodically, usually
monthly
, Guideline Lease (Tax Oriented
Lease) - correct answer ✔✔a lease contract that meets the IRS requirements for a genuine lease, thus
allowing the lessee to deduct the full amount of the lease payment from taxable income
Difference between tax-oriented lease and non-tax oriented lease? - correct answer ✔✔The major
difference between a tax-exempt lease and a conventional lease is that the implied interest portion of
the lease payment is not classified as taxable income to the lessor, so it is exempt from federal income
taxes.
Why should the IRS care about lease provisions? - correct answer ✔✔Without restrictions, a for-profit
could set up a "lease" transaction that calls for rapid lease payments, which could be deducted from
taxable income. The equipment would depreciate over a much shorter period than the IRS allows in its
deprecation guidelines.
What is a tax-exempt lease? - correct answer ✔✔Financial transaction created for not-for-profit
businesses.
a lease that does not meet the IRS requirements, in which case ownership for tax purposes resides with
the lessee rather than the lessor
Why is lease financing sometimes called off-balance sheet financing? - correct answer ✔✔Under certain
conditions, neither the leased asset nor the contract liabilities appear on the lessee's balance sheet.
Such as short-term (operating) leases
How are leases accounted for on a businesses balance sheet? - correct answer ✔✔The present market
value of the asset is included in the balance sheet under the assets side and depreciation is charged on
the income statement. On the other side, the loan amount, which is the net present value of all future
payments, is included under liabilities.
How are leases accounted for on a businesses income statement? - correct answer ✔✔lessee reports
lease payments as an expense item on the income statement in the year they are made
Questions
Operating Lease - correct answer ✔✔a lease whose term is much shorter than the expected useful life of
the asset being leased.
Term: shorter
Maintenance? yes
Amortized? No (fully paid off)
Cancelation Cause? Yes
Financial Lease - correct answer ✔✔A lease agreement that has a term approx. equal to the expected
useful life of the leased asset.
Term: Equal
Maintenance? No
Amortized? Yes
Cancelation cause? No
What is a sale-leaseback? - correct answer ✔✔Special type of financial lease, often used with real estate,
which can be arranged by a user who currently owns some asset. User sells the asset to another party
and simultaneously executes an agreement to lease the property for a stated period under specific
terms.
Per procedure payment term - correct answer ✔✔a lease agreement in which the lessee pays a fee to
the lessor each time the equipment is used, as opposed to paying a fixed, monthly payment. per click
lease
Conventional Term - correct answer ✔✔fixed payments are made to the lessor periodically, usually
monthly
, Guideline Lease (Tax Oriented
Lease) - correct answer ✔✔a lease contract that meets the IRS requirements for a genuine lease, thus
allowing the lessee to deduct the full amount of the lease payment from taxable income
Difference between tax-oriented lease and non-tax oriented lease? - correct answer ✔✔The major
difference between a tax-exempt lease and a conventional lease is that the implied interest portion of
the lease payment is not classified as taxable income to the lessor, so it is exempt from federal income
taxes.
Why should the IRS care about lease provisions? - correct answer ✔✔Without restrictions, a for-profit
could set up a "lease" transaction that calls for rapid lease payments, which could be deducted from
taxable income. The equipment would depreciate over a much shorter period than the IRS allows in its
deprecation guidelines.
What is a tax-exempt lease? - correct answer ✔✔Financial transaction created for not-for-profit
businesses.
a lease that does not meet the IRS requirements, in which case ownership for tax purposes resides with
the lessee rather than the lessor
Why is lease financing sometimes called off-balance sheet financing? - correct answer ✔✔Under certain
conditions, neither the leased asset nor the contract liabilities appear on the lessee's balance sheet.
Such as short-term (operating) leases
How are leases accounted for on a businesses balance sheet? - correct answer ✔✔The present market
value of the asset is included in the balance sheet under the assets side and depreciation is charged on
the income statement. On the other side, the loan amount, which is the net present value of all future
payments, is included under liabilities.
How are leases accounted for on a businesses income statement? - correct answer ✔✔lessee reports
lease payments as an expense item on the income statement in the year they are made
