CLFP Chapter 2 - Financial and Tax Accounting Exam Questions Fully Solved 100% Pass
Lessor Lease classification under ASC 840 (FASB 13) - Answers 1. Operating
2. Direct Financing (Capital)
3. Sales-Type (Capital)**
4. Leveraged (Capital)
**Allows recognition of up front profit
Lessee Lease classification under ASC 840 (FASB 13) - Answers 1. Operating
2. Capital
ASC 840 (FASB 13) - (YES = Capital Lease) - Answers Yes = Capital Lease
1. Transfer of Ownership (YES)
2. Bargain Purchase Option (YES)
3. Term >= 75% Useful Life (YES)
4. PV Rents >= 90% of FMV (YES)
ASC 840 (FASB 13) - (NO = Operating Lease) - Answers No = Operating Lease
1. Transfer of Ownership (NO)
2. Bargain Purchase Option (NO)
3. Term >= 75% Useful Life (NO)
4. PV Rents >= 90% of FMV (NO)
Rates used to perform 90% test calculation
LESSOR - Implicit Rate - Answers PV of minimum lease payments + value of unguaranteed residual = cost
of the equipment at lease inception
Lease classification under ASC 840 (FASB 13)
Rates used to perform 90% test calculation
LESSEE- Incremental Borrowing Rate (IBR) - Answers Rate at which the lessee could borrow funds under
the same basic terms and conditions of the lease
(known to the lessee)
, Capital Lease Balance Sheet at Inception (Net investment) - Answers Assets
+MLPR (Minimum lease payments received) +Unguaranteed Residual
- (Unearned Income)
=Net Investment
Capital Lease Balance Sheet end of Month 1 (Net investment) - Answers Assets
+MLPR (Minimum lease payments received) +Unguaranteed Residual
- (Unearned Income) PLUS NET INCOME
=Net Investment
INCOME STATEMENT - Capital Lease - Revenues - (LEASE INCOME) - Answers (Unearned Income/Term)=
Balance Sheet at INCEPTION (less UNEARNED INCOME) = - Answers ((PMT x Term) + (EC x residual %) -
Equipment Cost)=
Lessor Accounting - Operating Lease - Answers 1. LEASED PROPERTY equal to cost of leased property
(less accumulated depreciation) is recorded as ASSET on the BALANCE SHEET
2. Debt incurred by the Lessor in order to aquire the property subject to the lease is recorded as a
LIABILITY on the BALANCE SHEET. (ie Nonrecourse Debt Financing). Interest Expense related to the debt
is recorded on the INCOME STATEMENT each month.
3. On the INCOME STATEMENT, the RENTAL income earned each month is recognized and recorded.
Additionally, DEPRECIATION EXPENSE associated with the leased property is recognized and recorded
each month.
Balance Sheet at END of month 1 (less UNEARNED INCOME) = - Answers ((PMT x Term) + (EC x residual
%) - Equipment Cost) + (NET INCOME) =
Balance Sheet (Cash) = - Answers (Advance + Security Deposit)=
Balance Sheet/Capital Lease
MLPR (Minimum Lease Payments Received) = - Answers (First month PMT x Term - 1 month advance)
Balance Sheet /Capital (Ungaurenteed Residual) - Answers (Equipment Cost x % Residual)=
Capital Lease/Balance Sheet END of month 1 Assets include: Unearned Income + WHAT from Income
Statement - Answers Net Income
Balance Sheet at INCEPTION (less UNEARNED INCOME) = - Answers ((PMT x term)+(EC x % residual) -
EC)=
Lessor Lease classification under ASC 840 (FASB 13) - Answers 1. Operating
2. Direct Financing (Capital)
3. Sales-Type (Capital)**
4. Leveraged (Capital)
**Allows recognition of up front profit
Lessee Lease classification under ASC 840 (FASB 13) - Answers 1. Operating
2. Capital
ASC 840 (FASB 13) - (YES = Capital Lease) - Answers Yes = Capital Lease
1. Transfer of Ownership (YES)
2. Bargain Purchase Option (YES)
3. Term >= 75% Useful Life (YES)
4. PV Rents >= 90% of FMV (YES)
ASC 840 (FASB 13) - (NO = Operating Lease) - Answers No = Operating Lease
1. Transfer of Ownership (NO)
2. Bargain Purchase Option (NO)
3. Term >= 75% Useful Life (NO)
4. PV Rents >= 90% of FMV (NO)
Rates used to perform 90% test calculation
LESSOR - Implicit Rate - Answers PV of minimum lease payments + value of unguaranteed residual = cost
of the equipment at lease inception
Lease classification under ASC 840 (FASB 13)
Rates used to perform 90% test calculation
LESSEE- Incremental Borrowing Rate (IBR) - Answers Rate at which the lessee could borrow funds under
the same basic terms and conditions of the lease
(known to the lessee)
, Capital Lease Balance Sheet at Inception (Net investment) - Answers Assets
+MLPR (Minimum lease payments received) +Unguaranteed Residual
- (Unearned Income)
=Net Investment
Capital Lease Balance Sheet end of Month 1 (Net investment) - Answers Assets
+MLPR (Minimum lease payments received) +Unguaranteed Residual
- (Unearned Income) PLUS NET INCOME
=Net Investment
INCOME STATEMENT - Capital Lease - Revenues - (LEASE INCOME) - Answers (Unearned Income/Term)=
Balance Sheet at INCEPTION (less UNEARNED INCOME) = - Answers ((PMT x Term) + (EC x residual %) -
Equipment Cost)=
Lessor Accounting - Operating Lease - Answers 1. LEASED PROPERTY equal to cost of leased property
(less accumulated depreciation) is recorded as ASSET on the BALANCE SHEET
2. Debt incurred by the Lessor in order to aquire the property subject to the lease is recorded as a
LIABILITY on the BALANCE SHEET. (ie Nonrecourse Debt Financing). Interest Expense related to the debt
is recorded on the INCOME STATEMENT each month.
3. On the INCOME STATEMENT, the RENTAL income earned each month is recognized and recorded.
Additionally, DEPRECIATION EXPENSE associated with the leased property is recognized and recorded
each month.
Balance Sheet at END of month 1 (less UNEARNED INCOME) = - Answers ((PMT x Term) + (EC x residual
%) - Equipment Cost) + (NET INCOME) =
Balance Sheet (Cash) = - Answers (Advance + Security Deposit)=
Balance Sheet/Capital Lease
MLPR (Minimum Lease Payments Received) = - Answers (First month PMT x Term - 1 month advance)
Balance Sheet /Capital (Ungaurenteed Residual) - Answers (Equipment Cost x % Residual)=
Capital Lease/Balance Sheet END of month 1 Assets include: Unearned Income + WHAT from Income
Statement - Answers Net Income
Balance Sheet at INCEPTION (less UNEARNED INCOME) = - Answers ((PMT x term)+(EC x % residual) -
EC)=
