CLFP - CLASS REVIEW STUDY QUESTIONS WELL
ANSWERED WITH A GUARANTEED PASS!
Introduction
This 200-question simulation mirrors the 2025 Certified Lease & Finance Professional
(CLFP) national examination.
Content spans seven weighted domains: lease accounting (ASC 842 / IFRS 16),
documentation & legal risk, credit & portfolio analytics, taxation, equipment-finance
structures, portfolio management, and ethics/regulatory compliance.
Every item is original, scenario-based, and aligned with current ELFA, FASB, IRS, and
CLFP Board guidance to support mastery-level performance.
Examination-length set: 200 original questions
Question 1:
A lessee signs a seven-year equipment lease with an implicit interest rate of 6.5 % and
no residual guarantee. The lease term equals 85 % of the asset’s remaining economic
life. Under ASC 842, the lessee must:
A. Classify the lease as an operating lease and expense rent on a straight-line basis
B. Capitalise the lease and depreciate the right-of-use asset over the lease term
C. Defer recognition until the lessor transfers title
D. Apply off-balance-sheet treatment because title does not transfer
Answer: B. Capitalise the lease and depreciate the right-of-use asset over the lease
term
Solution: The lease meets the 75 %-of-life test (finance-lease criterion). Lessee
recognises ROU asset and lease liability; depreciation is over the lease term (7 yrs), not
economic life.
Question 2:
A lessor offers a 60-month fair-market-value (FMV) lease on USD 1 million of CNC
machines. The lessee’s incremental borrowing rate is 7 %, but the lease implicit rate is
5.5 %. Which rate does the lessee use to capitalise the lease under ASC 842?
A. 7 % (incremental borrowing rate)
B. 5.5 % (implicit rate) because it is determinable and lower
C. Weighted-average cost of capital (WACC)
D. Risk-free rate plus credit spread
Answer: B. 5.5 % (implicit rate) because it is determinable and lower
pg. 1
,Solution: ASC 842-20-30-3 requires the lessee to use the implicit rate if readily
determinable, regardless of the incremental borrowing rate.
Question 3:
A lessor includes a mandatory USD 75 000 residual guarantee in a five-year finance
lease. The guarantee is exercisable only if the asset’s fair value at termination is below
USD 75 000. For tax purposes, the guarantee is:
A. Included in the lessor’s minimum lease payments for depreciation
B. Ignored until actually paid
C. Treated as a Section 179 expense by the lessee
D. Added to the lessee’s cost basis under MACRS
Answer: A. Included in the lessor’s minimum lease payments for depreciation
Solution: IRC §467 and Rev. Proc. 2001-28 include guaranteed residuals in lessor’s
depreciable basis because payment is assured.
Question 4:
A lessor’s credit memo shows a 24-month lease with monthly advance payments of USD
15 000 and a 10 % purchase option. The customer’s DSCR is 1.18× and the debt-to-
tangible-net-worth ratio is 2.1×. Which risk grade is MOST appropriate?
A. Pass / Grade A
B. Pass / Grade B
C. Substandard
D. Doubtful
Answer: B. Pass / Grade B
Solution: DSCR > 1.15× and debt/TNW < 2.5× typically fall within Grade B parameters;
not weak enough for Substandard.
Question 5:
A lessee early-terminates an operating lease at month 30 of 48. The lease contract
specifies a termination fee equal to the present value of remaining rents discounted at
the original implicit rate plus 2 %. How should the lessee account for the fee under ASC
842?
A. Capitalise the fee as an additional ROU asset
B. Recognise the fee immediately in P&L as a separate charge
C. Amortise the fee over the remaining economic life of the asset
D. Defer the fee and amortise over original lease term
Answer: B. Recognise the fee immediately in P&L as a separate charge
Solution: ASC 842-20-40-1 requires gain/loss on operating-lease termination to be
recognised in the period incurred; the fee is not part of the ROU asset.
pg. 2
,Question 6:
A vendor lease program offers a 0 % APR for 24 months. The equipment cost to the
vendor is USD 200 000 and the lessor’s cost of funds is 4 %. The vendor’s buy-down
amount (rounded) is closest to:
A. USD 15 400
B. USD 13 900
C. USD 12 200
D. USD 10 800
Answer: A. USD 15 400
Solution: PV of 24 monthly payments of USD 8 333.33 at 4 % = USD 184 586; buy-down
= USD 200 000 – USD 184 586 ≈ USD 15 400.
Question 7:
A lessor drafts a synthetic lease. Which characteristic is ESSENTIAL for keeping the
asset off the lessee’s balance sheet under U.S. GAAP?
A. Lessee obtains title at inception
B. Present value of rents is < 90 % of asset fair value
C. Lessor retains no residual risk
D. Lease term equals 100 % of economic life
Answer: B. Present value of rents is < 90 % of asset fair value
Solution: To avoid finance-lease classification, none of the five criteria are met; PV < 90
% keeps it operating for lessee (pre-842) and off-balance-sheet.
Question 8:
A lessor funds a USD 5 million facility using 80 % bank debt at SOFR + 250 bps and 20 %
equity requiring a 15 % ROE. If the lessor’s blended tax rate is 25 % and SOFR is 3 %,
the after-tax weighted-average cost of capital (WACC) is closest to:
A. 5.4 %
B. 6.1 %
C. 7.0 %
D. 8.2 %
Answer: B. 6.1 %
Solution: Pre-tax debt = 5.5 %; after-tax = 5.5 % × (1 – 0.25) = 4.125 %. WACC = 0.8 ×
4.125 % + 0.2 × 15 % = 6.1 %.
Question 9:
A lease agreement includes an evergreen clause allowing the lessee to retain the asset
on a month-to-month basis at the same rent. Under ASC 842, when does the lease term
pg. 3
, end for depreciation purposes?
A. Original non-cancellable period only
B. Original period plus management’s best estimate of the evergreen period
C. Original period plus the full economic life
D. End of the first renewal option regardless of intent
Answer: B. Original period plus management’s best estimate of the evergreen
period
Solution: ASC 842-10-30-1 requires inclusion of renewal periods if reasonably certain;
evergreen clauses are estimated based on intent and economic incentives.
Question 10:
A lessor in a sales-type lease records gross profit at commencement. If the implicit rate
used is lower than the lessee’s incremental borrowing rate, which party benefits from
the lower rate?
A. Lessor—higher present value of residual
B. Lessee—lower lease liability
C. Lessor—higher selling profit
D. Lessee—higher depreciation expense
Answer: C. Lessor—higher selling profit
Solution: A lower implicit rate increases the present value of rents and residual, raising
the “selling price” and thus gross profit for the lessor at inception.
Question 11:
A lessee’s incremental borrowing rate is 7 %, but the lessor’s implicit rate is
determinable at 5 %. The lease term is 75 % of economic life. Which statement is TRUE
for the lessee’s income statement?
A. Interest expense each period exceeds depreciation expense
B. Total expense is front-loaded versus an operating lease
C. Depreciation is straight-line; interest declines over term
D. Rent is level over the term
Answer: C. Depreciation is straight-line; interest declines over term
Solution: Finance-lease pattern: straight-line depreciation of ROU asset plus effective-
interest on liability, creating a declining interest charge.
Question 12:
A lessor offers a TRAC lease on a USD 300 000 over-the-road truck. Estimated residual
at month 60 is USD 90 000. The lessee agrees to a TRAC amount of USD 80 000. If the
realized residual is USD 70 000, the lessee must:
A. Pay USD 10 000 to the lessor
B. Receive USD 10 000 from the lessor
pg. 4
ANSWERED WITH A GUARANTEED PASS!
Introduction
This 200-question simulation mirrors the 2025 Certified Lease & Finance Professional
(CLFP) national examination.
Content spans seven weighted domains: lease accounting (ASC 842 / IFRS 16),
documentation & legal risk, credit & portfolio analytics, taxation, equipment-finance
structures, portfolio management, and ethics/regulatory compliance.
Every item is original, scenario-based, and aligned with current ELFA, FASB, IRS, and
CLFP Board guidance to support mastery-level performance.
Examination-length set: 200 original questions
Question 1:
A lessee signs a seven-year equipment lease with an implicit interest rate of 6.5 % and
no residual guarantee. The lease term equals 85 % of the asset’s remaining economic
life. Under ASC 842, the lessee must:
A. Classify the lease as an operating lease and expense rent on a straight-line basis
B. Capitalise the lease and depreciate the right-of-use asset over the lease term
C. Defer recognition until the lessor transfers title
D. Apply off-balance-sheet treatment because title does not transfer
Answer: B. Capitalise the lease and depreciate the right-of-use asset over the lease
term
Solution: The lease meets the 75 %-of-life test (finance-lease criterion). Lessee
recognises ROU asset and lease liability; depreciation is over the lease term (7 yrs), not
economic life.
Question 2:
A lessor offers a 60-month fair-market-value (FMV) lease on USD 1 million of CNC
machines. The lessee’s incremental borrowing rate is 7 %, but the lease implicit rate is
5.5 %. Which rate does the lessee use to capitalise the lease under ASC 842?
A. 7 % (incremental borrowing rate)
B. 5.5 % (implicit rate) because it is determinable and lower
C. Weighted-average cost of capital (WACC)
D. Risk-free rate plus credit spread
Answer: B. 5.5 % (implicit rate) because it is determinable and lower
pg. 1
,Solution: ASC 842-20-30-3 requires the lessee to use the implicit rate if readily
determinable, regardless of the incremental borrowing rate.
Question 3:
A lessor includes a mandatory USD 75 000 residual guarantee in a five-year finance
lease. The guarantee is exercisable only if the asset’s fair value at termination is below
USD 75 000. For tax purposes, the guarantee is:
A. Included in the lessor’s minimum lease payments for depreciation
B. Ignored until actually paid
C. Treated as a Section 179 expense by the lessee
D. Added to the lessee’s cost basis under MACRS
Answer: A. Included in the lessor’s minimum lease payments for depreciation
Solution: IRC §467 and Rev. Proc. 2001-28 include guaranteed residuals in lessor’s
depreciable basis because payment is assured.
Question 4:
A lessor’s credit memo shows a 24-month lease with monthly advance payments of USD
15 000 and a 10 % purchase option. The customer’s DSCR is 1.18× and the debt-to-
tangible-net-worth ratio is 2.1×. Which risk grade is MOST appropriate?
A. Pass / Grade A
B. Pass / Grade B
C. Substandard
D. Doubtful
Answer: B. Pass / Grade B
Solution: DSCR > 1.15× and debt/TNW < 2.5× typically fall within Grade B parameters;
not weak enough for Substandard.
Question 5:
A lessee early-terminates an operating lease at month 30 of 48. The lease contract
specifies a termination fee equal to the present value of remaining rents discounted at
the original implicit rate plus 2 %. How should the lessee account for the fee under ASC
842?
A. Capitalise the fee as an additional ROU asset
B. Recognise the fee immediately in P&L as a separate charge
C. Amortise the fee over the remaining economic life of the asset
D. Defer the fee and amortise over original lease term
Answer: B. Recognise the fee immediately in P&L as a separate charge
Solution: ASC 842-20-40-1 requires gain/loss on operating-lease termination to be
recognised in the period incurred; the fee is not part of the ROU asset.
pg. 2
,Question 6:
A vendor lease program offers a 0 % APR for 24 months. The equipment cost to the
vendor is USD 200 000 and the lessor’s cost of funds is 4 %. The vendor’s buy-down
amount (rounded) is closest to:
A. USD 15 400
B. USD 13 900
C. USD 12 200
D. USD 10 800
Answer: A. USD 15 400
Solution: PV of 24 monthly payments of USD 8 333.33 at 4 % = USD 184 586; buy-down
= USD 200 000 – USD 184 586 ≈ USD 15 400.
Question 7:
A lessor drafts a synthetic lease. Which characteristic is ESSENTIAL for keeping the
asset off the lessee’s balance sheet under U.S. GAAP?
A. Lessee obtains title at inception
B. Present value of rents is < 90 % of asset fair value
C. Lessor retains no residual risk
D. Lease term equals 100 % of economic life
Answer: B. Present value of rents is < 90 % of asset fair value
Solution: To avoid finance-lease classification, none of the five criteria are met; PV < 90
% keeps it operating for lessee (pre-842) and off-balance-sheet.
Question 8:
A lessor funds a USD 5 million facility using 80 % bank debt at SOFR + 250 bps and 20 %
equity requiring a 15 % ROE. If the lessor’s blended tax rate is 25 % and SOFR is 3 %,
the after-tax weighted-average cost of capital (WACC) is closest to:
A. 5.4 %
B. 6.1 %
C. 7.0 %
D. 8.2 %
Answer: B. 6.1 %
Solution: Pre-tax debt = 5.5 %; after-tax = 5.5 % × (1 – 0.25) = 4.125 %. WACC = 0.8 ×
4.125 % + 0.2 × 15 % = 6.1 %.
Question 9:
A lease agreement includes an evergreen clause allowing the lessee to retain the asset
on a month-to-month basis at the same rent. Under ASC 842, when does the lease term
pg. 3
, end for depreciation purposes?
A. Original non-cancellable period only
B. Original period plus management’s best estimate of the evergreen period
C. Original period plus the full economic life
D. End of the first renewal option regardless of intent
Answer: B. Original period plus management’s best estimate of the evergreen
period
Solution: ASC 842-10-30-1 requires inclusion of renewal periods if reasonably certain;
evergreen clauses are estimated based on intent and economic incentives.
Question 10:
A lessor in a sales-type lease records gross profit at commencement. If the implicit rate
used is lower than the lessee’s incremental borrowing rate, which party benefits from
the lower rate?
A. Lessor—higher present value of residual
B. Lessee—lower lease liability
C. Lessor—higher selling profit
D. Lessee—higher depreciation expense
Answer: C. Lessor—higher selling profit
Solution: A lower implicit rate increases the present value of rents and residual, raising
the “selling price” and thus gross profit for the lessor at inception.
Question 11:
A lessee’s incremental borrowing rate is 7 %, but the lessor’s implicit rate is
determinable at 5 %. The lease term is 75 % of economic life. Which statement is TRUE
for the lessee’s income statement?
A. Interest expense each period exceeds depreciation expense
B. Total expense is front-loaded versus an operating lease
C. Depreciation is straight-line; interest declines over term
D. Rent is level over the term
Answer: C. Depreciation is straight-line; interest declines over term
Solution: Finance-lease pattern: straight-line depreciation of ROU asset plus effective-
interest on liability, creating a declining interest charge.
Question 12:
A lessor offers a TRAC lease on a USD 300 000 over-the-road truck. Estimated residual
at month 60 is USD 90 000. The lessee agrees to a TRAC amount of USD 80 000. If the
realized residual is USD 70 000, the lessee must:
A. Pay USD 10 000 to the lessor
B. Receive USD 10 000 from the lessor
pg. 4
