CLFP EXAM - Financial and Tax Accounting
for Leases | 100% Correct Answers | Verified
| Latest 2024 Version
What is a primary goal of the accounting profession? - ✔✔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? - ✔✔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? - ✔✔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? - ✔✔Approved by FASB in 7/2009, a single source of of
authoritative US accounting and reporting standards
What now governs lease accounting? - ✔✔ASC 840
What is a Bargain Renewal Option? - ✔✔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? - ✔✔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? - ✔✔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? - ✔✔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.
What is Residual Value of Leased Property? - ✔✔Estimated fair value of the lease property at the end of
the lease.
What is Executory Costs? - ✔✔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? - ✔✔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? - ✔✔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? - ✔✔The date lease commitment.
What is Incremental Borrowing Rate? - ✔✔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.
What is Initial Direct Cost (IDC)? - ✔✔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? - ✔✔An agreement conveying right to use property, plant or equipment for stated
period of time and rental payment.
What is Lease Term? - ✔✔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.
What is Maximum Lease Payments? - ✔✔All payments the lessee is obligated to make under the lease
agreement (outside of executory costs)
1.) minimum rentals
2.) Lessee guarantee of the residual value
3.) Penalties for failure to renew.
4.) Calc for lessor to include guaranteed residual
What is a Non-Cancelable Lease? - ✔✔A lease that is only cancelable upon:
1.) Occurrence of some remote contingency;
2.) Permission of lessor;
3.) Entrance into a new lease with the same lessor;
4.) Payment of a penalty in an amount that makes continuation of the lease reasonably assured.
What is Renewal or Extension of a Lease? - ✔✔The continuation of a lease agreement beyond the
original term, including a new lease where the lessee continues to use the same property.
What is Sale-Leaseback Accounting? - ✔✔A method of accounting for transactions in which the seller-
lessee records the sale , removes the property and related liabilities from its balance sheet, recognizes
gain or loss from the sale and classifies the leaseback in accordance with proper lease accounting
for Leases | 100% Correct Answers | Verified
| Latest 2024 Version
What is a primary goal of the accounting profession? - ✔✔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? - ✔✔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? - ✔✔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? - ✔✔Approved by FASB in 7/2009, a single source of of
authoritative US accounting and reporting standards
What now governs lease accounting? - ✔✔ASC 840
What is a Bargain Renewal Option? - ✔✔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? - ✔✔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? - ✔✔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? - ✔✔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.
What is Residual Value of Leased Property? - ✔✔Estimated fair value of the lease property at the end of
the lease.
What is Executory Costs? - ✔✔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? - ✔✔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? - ✔✔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? - ✔✔The date lease commitment.
What is Incremental Borrowing Rate? - ✔✔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.
What is Initial Direct Cost (IDC)? - ✔✔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? - ✔✔An agreement conveying right to use property, plant or equipment for stated
period of time and rental payment.
What is Lease Term? - ✔✔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.
What is Maximum Lease Payments? - ✔✔All payments the lessee is obligated to make under the lease
agreement (outside of executory costs)
1.) minimum rentals
2.) Lessee guarantee of the residual value
3.) Penalties for failure to renew.
4.) Calc for lessor to include guaranteed residual
What is a Non-Cancelable Lease? - ✔✔A lease that is only cancelable upon:
1.) Occurrence of some remote contingency;
2.) Permission of lessor;
3.) Entrance into a new lease with the same lessor;
4.) Payment of a penalty in an amount that makes continuation of the lease reasonably assured.
What is Renewal or Extension of a Lease? - ✔✔The continuation of a lease agreement beyond the
original term, including a new lease where the lessee continues to use the same property.
What is Sale-Leaseback Accounting? - ✔✔A method of accounting for transactions in which the seller-
lessee records the sale , removes the property and related liabilities from its balance sheet, recognizes
gain or loss from the sale and classifies the leaseback in accordance with proper lease accounting
