CLFP EXAM - Financial and Tax
Accounting for Leases Exam 2026
Questions and Answers
What is a primary goal of the accounting profession? - Correct answer-Consistent
treatment of like transactions to allow clarity in presentation and consistency in
interpretation of financial statements prepared by various individuals or entities.
How did APB (Accounting Principals Board) fail? - Correct answer-Created
Opinion #5 (Reporting of Leases in Financial Statements of Lessees) and Opinion
#7 (Accounting for Leases in Financial Statements for Lessors) that ha different
opinions and left lessors & lessees with conflicting rules.
What was FASB 13? - Correct answer-Financial Accounting Standards Board
issued "Accounting for Leases" which was a comprehensive set of standards to be
followed by lessors and lessees in accounting lease transactions.
What is Accounting Standards Codification? - Correct answer-Approved by FASB
in 7/2009, a single source of of authoritative US accounting and reporting
standards
©COPYRIGHT 2025, ALL RIGHTS RESERVE 1
,What now governs lease accounting? - Correct answer-ASC 840
What is a Bargain Renewal Option? - Correct answer-a provision allowing lessee,
at his option, to renew the lease for a rental sufficiently lower than the expected
fair value of the property at the date the option becomes excercisable. It is
reasonably assured the renewal option will be exercised.
What is a Bargain Purchase Option? - Correct answer-a provision allowing lessee,
at his option, to purchase the property for a price sufficiently lower than the
expected fair market value of the property at the date the option becomes
excercisable. It is reasonably assured the purchase option will be exercised.
What are Contingent Rentals? - Correct answer-Rentals that represent increases or
decreases in the lease payments made that result from changes in the factors on
which lease payments are based occurring subsequent to the inception of the lease.
Increases may occur due to increased construction cost or indexed interest rates.
What is Economical Useful Life of Leased Property? - Correct answer-At the
inception of the the lease, the estimated remaining period during which the
property is expected to be economically usable for its intended purpose by one or
more users. This may be impacted by usage, technology and deterioration.
Independent of lease term.
©COPYRIGHT 2025, ALL RIGHTS RESERVE 2
,What is Residual Value of Leased Property? - Correct answer-Estimated fair value
of the lease property at the end of the lease.
What is Executory Costs? - Correct answer-The costs such as insurance,
maintenance and taxes incurred for the leased property, whether paid by lessor or
lessee. Also include costs paid by lessee as guarantor.
What is Value of Leased Property? - Correct answer-The price at which the
property could be sold at an arm's length transaction by unrelated parties.
1.) normal selling price, net volume discounts, for a lessor who
manufacturer/dealer
2.) Cost, net volume discounts for a lessor that is note a manufacturer or dealer.
What is Implicit Interest Rate? - Correct answer-The discount rate that, when
applied to the minimum lease payments cause the aggregate present value at the
beginning of the lease term to be equal to the fair value of the leased property to
the lessor at the inception of the lease.
What is Inception of the Lease? - Correct answer-The date lease commitment.
What is Incremental Borrowing Rate? - Correct answer-The rate, at the inception
of the lease, the lessee would have incurred to borrow, under like terms, the funds
necessary to purchase the lease asset.
©COPYRIGHT 2025, ALL RIGHTS RESERVE 3
, What is Initial Direct Cost (IDC)? - Correct answer-Costs incurred by lessor that
are
1) to originate the lease in transactions with independent third parties that are
required and would have occurred regardless of leasing
2.) certain cost incurred by the lessor
What is a Lease? - Correct answer-An agreement conveying right to use property,
plant or equipment for stated period of time and rental payment.
What is Lease Term? - Correct answer-The fixed, non cancel-able term of the lease
plus:
1.) period covered by bargain renewal options
2.) period covered by a renewal when a significant penalty for failure to renew
exists;
3.) Ordinary renewal periods
4.) Renewal periods that precede a bargain purchase option.
5.) Renewal periods that are at the option of the lessor
6.) does not exceed term beyond when the bargain purchase option can be
exercised.
©COPYRIGHT 2025, ALL RIGHTS RESERVE 4
Accounting for Leases Exam 2026
Questions and Answers
What is a primary goal of the accounting profession? - Correct answer-Consistent
treatment of like transactions to allow clarity in presentation and consistency in
interpretation of financial statements prepared by various individuals or entities.
How did APB (Accounting Principals Board) fail? - Correct answer-Created
Opinion #5 (Reporting of Leases in Financial Statements of Lessees) and Opinion
#7 (Accounting for Leases in Financial Statements for Lessors) that ha different
opinions and left lessors & lessees with conflicting rules.
What was FASB 13? - Correct answer-Financial Accounting Standards Board
issued "Accounting for Leases" which was a comprehensive set of standards to be
followed by lessors and lessees in accounting lease transactions.
What is Accounting Standards Codification? - Correct answer-Approved by FASB
in 7/2009, a single source of of authoritative US accounting and reporting
standards
©COPYRIGHT 2025, ALL RIGHTS RESERVE 1
,What now governs lease accounting? - Correct answer-ASC 840
What is a Bargain Renewal Option? - Correct answer-a provision allowing lessee,
at his option, to renew the lease for a rental sufficiently lower than the expected
fair value of the property at the date the option becomes excercisable. It is
reasonably assured the renewal option will be exercised.
What is a Bargain Purchase Option? - Correct answer-a provision allowing lessee,
at his option, to purchase the property for a price sufficiently lower than the
expected fair market value of the property at the date the option becomes
excercisable. It is reasonably assured the purchase option will be exercised.
What are Contingent Rentals? - Correct answer-Rentals that represent increases or
decreases in the lease payments made that result from changes in the factors on
which lease payments are based occurring subsequent to the inception of the lease.
Increases may occur due to increased construction cost or indexed interest rates.
What is Economical Useful Life of Leased Property? - Correct answer-At the
inception of the the lease, the estimated remaining period during which the
property is expected to be economically usable for its intended purpose by one or
more users. This may be impacted by usage, technology and deterioration.
Independent of lease term.
©COPYRIGHT 2025, ALL RIGHTS RESERVE 2
,What is Residual Value of Leased Property? - Correct answer-Estimated fair value
of the lease property at the end of the lease.
What is Executory Costs? - Correct answer-The costs such as insurance,
maintenance and taxes incurred for the leased property, whether paid by lessor or
lessee. Also include costs paid by lessee as guarantor.
What is Value of Leased Property? - Correct answer-The price at which the
property could be sold at an arm's length transaction by unrelated parties.
1.) normal selling price, net volume discounts, for a lessor who
manufacturer/dealer
2.) Cost, net volume discounts for a lessor that is note a manufacturer or dealer.
What is Implicit Interest Rate? - Correct answer-The discount rate that, when
applied to the minimum lease payments cause the aggregate present value at the
beginning of the lease term to be equal to the fair value of the leased property to
the lessor at the inception of the lease.
What is Inception of the Lease? - Correct answer-The date lease commitment.
What is Incremental Borrowing Rate? - Correct answer-The rate, at the inception
of the lease, the lessee would have incurred to borrow, under like terms, the funds
necessary to purchase the lease asset.
©COPYRIGHT 2025, ALL RIGHTS RESERVE 3
, What is Initial Direct Cost (IDC)? - Correct answer-Costs incurred by lessor that
are
1) to originate the lease in transactions with independent third parties that are
required and would have occurred regardless of leasing
2.) certain cost incurred by the lessor
What is a Lease? - Correct answer-An agreement conveying right to use property,
plant or equipment for stated period of time and rental payment.
What is Lease Term? - Correct answer-The fixed, non cancel-able term of the lease
plus:
1.) period covered by bargain renewal options
2.) period covered by a renewal when a significant penalty for failure to renew
exists;
3.) Ordinary renewal periods
4.) Renewal periods that precede a bargain purchase option.
5.) Renewal periods that are at the option of the lessor
6.) does not exceed term beyond when the bargain purchase option can be
exercised.
©COPYRIGHT 2025, ALL RIGHTS RESERVE 4
