CLFP Classification & Terminology in Leasing Exam Questions and Answers Latest

CLFP Classification & Terminology in Leasing Exam Questions and Answers Latest . Helps avoid tax abuse by defining what is not a lease for tax purposes. - Correct Answer-What is significant about IRS Revenue Ruling 55-540? Per IRS Revenue Ruling 55-540, what are the rules that if present prevent a transaction from being a lease for tax purposes? - Correct Answer-1). Any portion of the periodic payment is equity, 2.) lessee automatically acquires title upon making scheduled payments 3.) the total amount, which a lessee is required to be paid is an inordinately large portion of the total sum to buy the equipment, 4.) Nominal purchase option 5.) some portion of the payment is designated interest What are the tax benefits of a lease for the LESSOR? - Correct Answer-1.) all rental streams would be taken into income, 2.) tax credits 3.) Allowable depreciations What are the tax benefits of a lease for the LESSEE? - Correct Answer-all rental payments can be treated as operating expenses and be not subject to federal tax What is IRS Revenue Procedure 75-21? - Correct Answer-Created in 1975, it was designed to fix the shortcomings of IRS Revenue Ruling 55-540 which tried to defined a contract of sale but did not did not include the attributes of a lease. Per IRS Revenue Procedure 75-21, and later changed by Revenue Procedure 2001-28, what are the attributes of a lease "for advanced ruling purposes only"? - Correct Answer-1.) Risk - lessor must contain unconditional risk during term; 2.) Right to Buy - Lessee may not have a right to buy at less than FMV, 3.) Investment: The lessee may not invest in the property; 4.) Loans: The lessee may not lend money to the lessor to buy the property; 5.) Profit: The lessor must show it is making a profit apart from the tax deduction What may a transaction be labeled if it does not qualify for as a lease per Revenue Procedure 2001 -28? - Correct Answer-Financing, conditional sales contract, a capital lease, a finance lease, a lease intended for security, money over money transaction or purchase money security agreement, loan or non-tax lease. Does Revenue Procedure 2001-28 help in determining federal tax treatment of a transaction? - Correct Answer-No. This procedure is used for "advanced ruling purposes only" and does not help with federal tax treatment and should not be used for audit purposes CLFP EXAM - Classification & Terminology in Leasing Exam Questions and Answers Latest What is the purpose of FASB? - Correct Answer-To guide the format or financial statements and GAAP. What is FASB #13? - Correct Answer-Issued in 1976, it set fourth 1.) four criteria by which to classify a lease as either a capital lease or an operating lease, 2.) how each was to be treated on the financial statement, 3.) for both the lessee and lessor What later replaced FASB 13? - Correct Answer-Accounting Standards Codification replaced with ASC 840 (2009) Per ASC 840, what is a capital lease? - Correct Answer-A lease with a purchase agreement and also meets any one of the four (4) criteria requirements. How is the lessee supposed to account for a capital lease? - Correct Answer-1.) Show the equipment as an asset and 2). show the stream of payments as their respective portion of short and long term debt. 3.) Only the portion of the payment that is related to interest and depreciation can be expensed How is a lessor supposed to account for a capital lease? - Correct Answer-1..) Show the stream of payments as a lease receivable (capitalize) and 2.) may only take into income the portion of the payment applicable to interest. Per ASC 840, what is a operating lease? - Correct Answer-A lease that has characteristics of usage and does not meet any of the four (4) criteria requirements. How is a lessee supposed to account for an operating lease? - Correct Answer-1.) Do not report the asset on the balance sheet and instead reports the full periodic payment as an expense. 2.) Must also disclose the obligation in its financial statement notes. How is a lessor supposed to account for an operating lease? - Correct Answer-1.) Show the property being leased as a fixed asset. 2.) All the period income payments are taken into income and 3.) the initial direct cost must be capitalized and later expensed over the lease term. Per ASC 840, what are the four (4) criteria used to determine lease status from an accounting perspective? None can be met for operating lease status. - Correct Answer1.) Title automatically transfers to lessee at end of lease; or 2.) Contains a bargain purchase option; or 3). The lease term is >= 75% of the assets useful life; or