CLFP Exam Questions and Answers Latest Update | Scored A+

CLFP Exam Questions and Answers Latest Update | Scored A+. Oldest Record of Leasing correct answer2010 B.C. in Sumerian City of Ur using Clay tablets for ag tools, land & Water rights, oxen and other animals Code of Hammurabi correct answer1750 BC, acknowledged leasing of Personal Property. First Record of Leasing First Example of A True Lease correct answerShip Charters. Phoenicians leased the ship and crew requiring them to assume benefits and obligations of ownership Statue of Wales correct answer1284 AD. English Common Law - to deal with leasing of personal property and clarified in 1571 to define who owned the leased property Railroad Industry Leasing correct answerCompanies could only afford the Track. Private Investors financed the locomotives and rail cars through equipment trusts. Most well-know plan was Philadelphia Plan Independent Leasing Companies correct answer- Formed in 1900s - Manufacturers found the benefit of leasing to move product creating captives - WWII used cost-plus contracts to make leasing attractive post-depression. Internal Revenue Code - Section 167 correct answer- 1953 - Gave owner / Lessor ability to take ordinary payments into income associated with the lease and accelerate depreciation IRS Revenue Ruiling 55-540 correct answerDefines what is NOT a true lease for tax purposes. 6 Criteria, and if any aren't met, the IRS determines to be a CSC and tax benefits go to Lessee. (PAINEE) What are the 6 Criteria from Rev Ruling 55-540? correct answerPAINEE: CLFP Exam Questions and Answers Latest Update | Scored A+ -(P) Payments are not substantially higher than the FMV (Payments exceed Rental Value) -(A) Ownership of the asset does not automatically transfer to lessee at the end of term (Automatic Title) -(I) No portion of the lease payment is categorized as interest -(N) The transaction does not include a nominal purchase option -(E)No portion of the lease payments can be applied to an equity position in the asset (Equity) -(E) Excessive Payments - Amount of payments paid under a short term lease is not a significant portion of the purchase price Investment Tax Credit correct answertax credit given for purchase of equipment Asset Depreciation Range (ADR) - 1972 correct answerA system to determine the useful life for the depreciation costs of most assets for the purposes of federal income tax. Revenue Procedure correct answerClarified is the Lessor was equipment owner for tax purposes. The following had to be met: 1. Initial Minimum Investment 2. Lease Term and Renewal Options 3. Purchase and Sale Rights 4. No Investment by lessee 5. No Lease loans, or guarantees 6. Profit requirement FASB 13 - 1976 correct answerNow ASC 842. 5 criteria to determine if a lease was operating or capital for financial statements. If any of these are true - the lease is capital lease: 1. Automatic Transfer of Title 2. Lease contains bargain purchase option 3. term is greater than or equal to 75% of the estimated economic life of the leased property 4. The PV of the minimum lease payments at the beginning of the lease term is greater than 90% of the FMV 5.Underlying Asset is of a specialized nature Economic Recovery Tax Act of 1981 (ERTA) correct answerAn extensive revision of the Internal Revenue Code of 1954 to encourage economic growth through reductions in tax rates and creating of ACRS. Owner/lessor could now fully depreciate an asset without having to estimate the useful life and salvage value. Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) correct answerIncrease the Tax Revenues lost under ERTA. Repealed safe harbor leases and replaced with Finance Leases. Competitive Equality Banking Act 1987 correct answerRemoved the maximum residual value limit for a portion of the bank lessor business. Allowed banks to enter into the operating lease marketplace competitively. Deficit Reduction Act of 1984 correct answerA means of reducing the deficit and increasing tax revenues. Introduced the time value of money as a method for lessors to adjust uneven rental streams for tax purposes. Reduced depreciation benefits on real property and true tax treatment was disallowed for leases to foreign corporations not subject to US tax. TRAC leases were recognized as True Leases Tax Reform Act of 1986 correct answerEliminated ITC, which resulted in companies needing to keep two sets of book (accounting and tax). Strengthened and expanded the reach of the Alternative Minimum Tax. Leasing in the 1990s correct answer- Credit Score innovation - Third Party Originators accepted by banks - Creative Financing and Large-Ticket lease structures. Double Dip Lease correct answerCross Border Leasing structured to take advantage of tax benefits in both lessee and lessor countries Leveraged lease correct answerAny of several specific types of leases involving at a minimum, a lessee, lessor, and a funding source from whom the lessor borrowers a significant portion of the cost of the equipment and takes and equity position in the remainder Synthetic Lease correct answerDesigned to be a loan for tax purposes and a lease for accounting purposes Enron Scandal correct answerEnron collapse led to increased regulatory scrutiny and changes in accounting rules for leases, financial reporting requirements, and accounting for public companies. Created Sarbanes Oxley Equipment Lease correct answerA transaction in which use and possession, but not title to tangible property, is transferred for consideration. Industry Participants correct answerEquipment End Users, Third party originators, Lessors & Lenders, Investors, Regulators, Trade Associations, Service Companies, Equipment Suppliers Government Leasing correct answerMunicipal, Federal Government, Native American Tribes/Nations. Unique tax implications. Competition to Equipment Financing correct answerCash, Unsecured Lines of Credit, Personal or Corporate Credit Cards, Secured Loans, Merchant Cash Advances Alternative Funding Options correct answer1. Merchant Cash Advance: Typically for transnational retail oriented small businesses. 2. Working Capital: Short-term unsecured loans, gives quick access to cash to run or fund the business. 3. Invoice Factoring: Accelerates the cash flow in exchange for a discount of face value of an invoice. What are the three lenses for examining leases? correct answer1. Tax = (Determined by IRS Rev. Ruling 55-540) Tax Lease or Conditional Sales Obligation 2. Accounting = (Determined by FASB 13) Capital or Operating Lease 3. Legal = (determined by UCC and Court System) True lease or Conditional Sales Contract Capital Lease correct answerA lease from the lessee's accounting point of view that meets any of the four criteria designated by ASC 840 (FASB 13) Equipment Financing Agreement correct answerResembles the Finance Lease Structure, but provides the lender to lend the borrower and amount for the purchase of the equipment. Typically, lender pays the the vendor invoice and files a lien against the collateral Conditional Sales Contract correct answerAgreement for the purchase of an asset and the lessee is treated as the owner for federal income tax purposes Finance Lease correct answerA true lease in which the lessor is not the manufacturer or supplier of the leased personal property, does not select the equipment, and warranties provided by supplier are automatically deemed assigned to the lessee Net Lease correct answerA lease in which all costs in connection with the use of property, such as maintenance, insurance, and property taxes, are paid for separately by the lessee and are not included in the rental payment to the lessor. Fair Market Value Lease correct answerA lease containing an option for the lessee to purchase leased property at the end of the term at is then fair market value Money-over-Money Transaction correct answerA non-tax lease or conditional sales contract in the guise of a lease in which the title is intended to pass to the lessee at the end of the lease term Operating Lease correct answerFrom an accounting perspective, any lease that has the characteristics of a usage agreement and also fails to meet any of the criteria set forth under ASC 840 for a capital lease Non-Tax Lease correct answerAny lease in which the lessee is, or will automatically become, the owner during or at the end of the lease term of the property and, therefore is entitled to all the tax benefits of ownership. Examples: Conditional Sales Contract, Money-over-Money transaction, purchase money security agreement, or other lease intended as security Purchase Upon Termination correct answerAn agreement where the lessee agrees to buy, and the lessor agrees to see, the leased equipment for a predetermined amount upon termination of the lease Rental Agreement correct answerA short service lease, usually less than 12 months in duration Sale-leaseback correct answerA transaction in which the original user sells an asset to a lessor and leases is back. TRAC Lease correct answerA lease on a qualified automobile, truck or trailer, which may be considered a true lease for federal income purposes even though it contains a Terminal Rental Adjustment clause, which effectively guarantees the lessor the residual value. Statutory Law correct answerThe body of law enacted by legislatures. The Uniform Commercial Code is a body of State law Case Law correct answerOften referred to as "common law"; cases that apply/interpret statutory law or prior case law precedents to particular sets of facts. Regulatory Law correct answerConsists of regulations adopted by public bodies (i.e. IRS or SEC) Federal Law correct answerLaws adopted by US Congress such as IRC and Bankruptcy Code State Law correct answerlaws adopted by the state legislatures such as UCC, Sales Tax, and property tax Conflicts of Law correct answerinconsistencies in laws between states. Contract Law correct answerlaws regarding voluntary arrangement between 2 or more parties; generally, a matter of state law but case law is also important