CLFP EXAM - Financial and Tax Accounting for
Leases Latest Update 2025-2026 140 Questions
and 100% Verified Correct Answers Guaranteed
A+
Are "net leases" treated differently from tax perspective? - CORRECT ANSWER: Some
lessor believe that they can delegate tax liability to the lessee via their lease agreement.
Most government agencies don't agree.
Describe a key element to understanding a balance sheet. - CORRECT ANSWER: 1.)
Assets - Liabilities = Equity
2.) any increase or decrease on one side of the equation always creates a
corresponding entry on the other side of the equation
How can financial statements be used to manage? - CORRECT ANSWER: 1.) Review
statements over different periods of time can help management to see trends, strengths
and weaknesses.
2.) Reviewing financial statements over longer period time, underwriters can better
assess credit risk.
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.
How is debt accounted for by lessor in a direct finance lease? - CORRECT ANSWER:
Debt incurred by lessor to acquire equipment remains on the balance sheet as long
term liability
How is Depreciation Calculated? - CORRECT ANSWER: Apportioning an assets
original value, less any expected salvage value, over the expected useful life.
,How is Depreciation reflected on financial statements? - CORRECT ANSWER: 1.)
income statement - reflected as an expense
2.) balance sheet - reflected as book value (carrying cost)
How is IDC accounted for on Lessor financial statements? - CORRECT ANSWER: IDC
incurred by lessor are capitalized, reduced from expense and amortized on a straight-
line basis over over the term of the lease to offset income.
How is Lessor's Tax Treatment different if a lease DOES NOT pass "burden of proof"? -
CORRECT ANSWER: Would be considered a sale, not a lease and the lessor would
realize rental income to the extent of the total lease payments exceed the equipment
cost. Interest is amortized of the the life of lease.
How is Lessor's Tax Treatment different if a lease DOES pass "burden of proof"? -
CORRECT ANSWER: Treated as True Lease. Rental payments are recognized as
income and the leased asset is capitalized as an asset and depreciated. Must use tax,
not book, depreciation method (i.e. useful lives)
How is Unearned Income accounted for on the Lessor Income Statement? - CORRECT
ANSWER: Unearned income is amortized over the lease term so as to produce a
constant periodic rate of return on the net investment.
How may Lessor and Lessee testASC 840 differently? - CORRECT ANSWER: 1) may
use different implicit rates to calc 90% FMV test
2.) Lessor includes residuals guaranteed by third parties and lessee does not when calc
90% FMV test
How should a lessor account for a direct finance lease? - CORRECT ANSWER: Net
investment (book value) in the lease is recorded as an asset on the balance sheet:
+Gross Investment
- Unearned Income
, = Net Investment
How should a Lessor account for an Operating Lease on its balance sheet? -
CORRECT ANSWER: 1.) lease property is capitalized as cost under "investment in
leased property",
2.) Leased property is depreciated straight-line over the lease term, down to the residual
value
How should a Lessor account for an Operating Lease on its income statement? -
CORRECT ANSWER: Rental income is recognized on operating leases in the period
the payment is a receivable. If payments are not level (increasing or decreasing) they
are recorded on a straight-line basis unless the alternative payment is more
representative of property usage
How should a Lessor account for residual values? - CORRECT ANSWER: 1.) review
residual values annually
2.) If decline, determine if temporary or permanent.
3.) if permanent, value is to be revised and loss in the investment during the current
period.
4.) Residual values are never adjusted up, even in cases of past losses.
How should manufacturer account for a sale-type lease? - CORRECT ANSWER: 1.)
take sale profit, or
2.) capitalize the expense as IDC
3.) Can't to both
How should the lessee record a capital lease on its balance sheet? - CORRECT
ANSWER: 1.) as an asset and an obligation;
2.) the obligation should be recorded at the lower of r value:
i.) PV of stream at the beginning of the stream (exclude executory cost)
ii.) the fair value of leased property
Leases Latest Update 2025-2026 140 Questions
and 100% Verified Correct Answers Guaranteed
A+
Are "net leases" treated differently from tax perspective? - CORRECT ANSWER: Some
lessor believe that they can delegate tax liability to the lessee via their lease agreement.
Most government agencies don't agree.
Describe a key element to understanding a balance sheet. - CORRECT ANSWER: 1.)
Assets - Liabilities = Equity
2.) any increase or decrease on one side of the equation always creates a
corresponding entry on the other side of the equation
How can financial statements be used to manage? - CORRECT ANSWER: 1.) Review
statements over different periods of time can help management to see trends, strengths
and weaknesses.
2.) Reviewing financial statements over longer period time, underwriters can better
assess credit risk.
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.
How is debt accounted for by lessor in a direct finance lease? - CORRECT ANSWER:
Debt incurred by lessor to acquire equipment remains on the balance sheet as long
term liability
How is Depreciation Calculated? - CORRECT ANSWER: Apportioning an assets
original value, less any expected salvage value, over the expected useful life.
,How is Depreciation reflected on financial statements? - CORRECT ANSWER: 1.)
income statement - reflected as an expense
2.) balance sheet - reflected as book value (carrying cost)
How is IDC accounted for on Lessor financial statements? - CORRECT ANSWER: IDC
incurred by lessor are capitalized, reduced from expense and amortized on a straight-
line basis over over the term of the lease to offset income.
How is Lessor's Tax Treatment different if a lease DOES NOT pass "burden of proof"? -
CORRECT ANSWER: Would be considered a sale, not a lease and the lessor would
realize rental income to the extent of the total lease payments exceed the equipment
cost. Interest is amortized of the the life of lease.
How is Lessor's Tax Treatment different if a lease DOES pass "burden of proof"? -
CORRECT ANSWER: Treated as True Lease. Rental payments are recognized as
income and the leased asset is capitalized as an asset and depreciated. Must use tax,
not book, depreciation method (i.e. useful lives)
How is Unearned Income accounted for on the Lessor Income Statement? - CORRECT
ANSWER: Unearned income is amortized over the lease term so as to produce a
constant periodic rate of return on the net investment.
How may Lessor and Lessee testASC 840 differently? - CORRECT ANSWER: 1) may
use different implicit rates to calc 90% FMV test
2.) Lessor includes residuals guaranteed by third parties and lessee does not when calc
90% FMV test
How should a lessor account for a direct finance lease? - CORRECT ANSWER: Net
investment (book value) in the lease is recorded as an asset on the balance sheet:
+Gross Investment
- Unearned Income
, = Net Investment
How should a Lessor account for an Operating Lease on its balance sheet? -
CORRECT ANSWER: 1.) lease property is capitalized as cost under "investment in
leased property",
2.) Leased property is depreciated straight-line over the lease term, down to the residual
value
How should a Lessor account for an Operating Lease on its income statement? -
CORRECT ANSWER: Rental income is recognized on operating leases in the period
the payment is a receivable. If payments are not level (increasing or decreasing) they
are recorded on a straight-line basis unless the alternative payment is more
representative of property usage
How should a Lessor account for residual values? - CORRECT ANSWER: 1.) review
residual values annually
2.) If decline, determine if temporary or permanent.
3.) if permanent, value is to be revised and loss in the investment during the current
period.
4.) Residual values are never adjusted up, even in cases of past losses.
How should manufacturer account for a sale-type lease? - CORRECT ANSWER: 1.)
take sale profit, or
2.) capitalize the expense as IDC
3.) Can't to both
How should the lessee record a capital lease on its balance sheet? - CORRECT
ANSWER: 1.) as an asset and an obligation;
2.) the obligation should be recorded at the lower of r value:
i.) PV of stream at the beginning of the stream (exclude executory cost)
ii.) the fair value of leased property
