Eligibility Flashcards

What is a Bargain Purchase Option?

Answer: 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 exercisable. It is reasonably assured the purchase option will be exercised.

A Bargain Purchase Option is a specific clause in a lease agreement that grants the lessee the right to buy the leased asset at a price significantly below its anticipated fair market value at the time the option becomes available. This option is considered a "bargain" because the purchase price is so attractive that it is reasonably certain the lessee will exercise it. Its presence often indicates that the lease is effectively a financing arrangement rather than a true operating lease, impacting accounting and tax classifications.

Why is sales tax complicated?

Answer: 1.) require monthly, quarterly, semi annual or annual 3.) payment may be due upfront or over the stream 4.) certain equipment is exempt for sales tax 5.) sales tax vary per jurisdiction and update periodically

Sales tax is complicated in the equipment leasing and finance industry due to several factors. Firstly, the frequency of payment requirements (monthly, quarterly, etc.) and whether payments are due upfront or over the lease term can vary significantly. Secondly, specific types of equipment may be exempt from sales tax, adding another layer of complexity. Most importantly, sales tax rates and regulations differ widely across various jurisdictions and are subject to periodic updates, requiring constant vigilance and expertise to ensure compliance.

What is Inception of the Lease?

Answer: The date lease commitment.

The "Inception of the Lease" refers to the date when the major terms and conditions of a lease agreement are finalized and committed to by both the lessor and the lessee. This date is crucial because it often dictates the start of the lease term for accounting purposes and determines the classification of the lease (e.g., operating vs. capital/finance lease). It's the point at which the contractual obligations become binding, even if the equipment hasn't been delivered or payments haven't begun.

What are the benefits of accrual basis accounting?

Answer: 1.) report a company revenue/expenses for a particular period of time 2.) report a company assets/liabilities for a particular period of time 3.) Provide insight into liquidity, leverage and allow insight as to whether they can accommodate more debt.

Accrual basis accounting offers significant benefits by providing a more accurate and comprehensive picture of a company's financial performance and position. It records revenues when earned and expenses when incurred, regardless of when cash is exchanged, allowing for proper matching of revenues and expenses. This method enables the reporting of a company's true assets, liabilities, revenues, and expenses for specific periods, offering crucial insights into liquidity, leverage, and the capacity for future debt, which is vital for informed decision-making.

What is PreTax income?

Answer: Regarding elements of an income statement, this represents Operating Income plus/less Other Revenue/Expense.

Pre-Tax Income, also known as Earnings Before Tax (EBT), is a key line item on a company's income statement. It is calculated by taking the Operating Income and then adding or subtracting any "Other Revenue" or "Other Expense" that falls outside of the company's primary operations. This figure represents the company's profit before any income taxes are deducted, providing a clear view of profitability from core and non-core activities before the impact of taxation.