1
CLFP EXAM - Financial and Tax
Accounting for Leases Questions and
Verified Answers Latest 2025. Graded A
Are "net leases" treated differently from tax perspective? - ANS 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. - ANS
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? - ANS
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? - ANS 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.
1
, 2
How is debt accounted for by lessor in a direct finance lease? - ANS Debt
incurred by lessor to acquire equipment remains on the balance sheet as
long term liability
How is Depreciation Calculated? - ANS Apportioning an assets original
value, less any expected salvage value, over the expected useful life.
How is Depreciation reflected on financial statements? - ANS
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? - ANS 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"? - ANSWould 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"? - ANSTreated 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)
2
, 3
How is Unearned Income accounted for on the Lessor Income Statement?
- ANSUnearned 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? - ANS1) 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? - ANSNet
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?
- ANS1.) 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? - ANSRental 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
3
CLFP EXAM - Financial and Tax
Accounting for Leases Questions and
Verified Answers Latest 2025. Graded A
Are "net leases" treated differently from tax perspective? - ANS 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. - ANS
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? - ANS
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? - ANS 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.
1
, 2
How is debt accounted for by lessor in a direct finance lease? - ANS Debt
incurred by lessor to acquire equipment remains on the balance sheet as
long term liability
How is Depreciation Calculated? - ANS Apportioning an assets original
value, less any expected salvage value, over the expected useful life.
How is Depreciation reflected on financial statements? - ANS
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? - ANS 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"? - ANSWould 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"? - ANSTreated 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)
2
, 3
How is Unearned Income accounted for on the Lessor Income Statement?
- ANSUnearned 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? - ANS1) 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? - ANSNet
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?
- ANS1.) 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? - ANSRental 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
3
