CEM Equipment Acquisition & Disposal 3 — Questions and Answers
Question 1: Which type of equipment acquisition agreement transfers ownership to the buyer at the end of the contract term for a nominal fee?
- Operating lease
- Capital lease (finance lease) (Correct answer)
- Equipment rental agreement
- Service contract
Correct answer: Capital lease (finance lease)
A capital lease is structured so the lessee assumes substantially all ownership risks and rewards, with title transferring at lease end.
Question 2: An exhibition company discovers that a competitor is selling used truss systems at auction. Before bidding, what is the most critical due diligence step?
- Verify the brand's social media presence
- Obtain and review the maintenance and inspection records (Correct answer)
- Check if replacement parts are still manufactured
- Confirm the color matches current inventory
Correct answer: Obtain and review the maintenance and inspection records
Maintenance and inspection history reveals structural integrity, prior damage repairs, and compliance with safety standards for rigging equipment.
Question 3: Under the Uniform Commercial Code (UCC), risk of loss for shipped equipment typically transfers to the buyer when?
- The purchase order is signed
- The seller ships the goods (FOB shipping point) (Correct answer)
- The buyer receives and inspects the goods
- Payment is cleared by the bank
Correct answer: The seller ships the goods (FOB shipping point)
Under FOB shipping point terms, risk of loss passes to the buyer once the seller delivers goods to the carrier.
Question 4: Which environmental regulation most directly affects the disposal of fluorescent lighting used in exhibition displays in the U.S.?
- OSHA 1910.303
- EPA Universal Waste Rule (Correct answer)
- ADA Title III
- FCC Part 15
Correct answer: EPA Universal Waste Rule
The EPA Universal Waste Rule governs disposal of mercury-containing lamps including fluorescents, requiring proper recycling or disposal.
Question 5: What is a 'blanket purchase order' and how does it benefit exhibition equipment procurement?
- A one-time order for all equipment needed at a single show
- A standing agreement allowing repeated orders from a vendor at pre-negotiated prices (Correct answer)
- An order that covers equipment insurance automatically
- A multi-vendor order placed through a single broker
Correct answer: A standing agreement allowing repeated orders from a vendor at pre-negotiated prices
Blanket POs lock in pricing and terms for a set period, reducing administrative burden and ensuring supply availability for recurring equipment needs.
Question 6: When preparing a capital budget request for new digital signage equipment, which supporting document best justifies the expenditure to senior management?
- Vendor catalog page
- Cost-benefit analysis comparing current vs. proposed solution (Correct answer)
- Equipment color swatch
- Vendor credit application
Correct answer: Cost-benefit analysis comparing current vs. proposed solution
A cost-benefit analysis quantifies financial and operational gains against investment cost, providing management with objective justification.
Question 7: A trade show manager sells obsolete booth components to a competitor. Which tax implication may arise if the sale price exceeds the asset's book value?
- Sales tax credit
- Capital gains or ordinary income recognition (Correct answer)
- Depreciation recapture waiver
- Tax-exempt status for the buyer
Correct answer: Capital gains or ordinary income recognition
Selling a depreciated asset above its book value triggers a gain that may be taxed as ordinary income (depreciation recapture) or capital gain depending on holding period.
CEM Equipment Acquisition & Disposal 3
Which type of equipment acquisition agreement transfers ownership to the buyer at the end of the contract term for a nominal fee?