CLFP Equipment Finance Fundamentals

Question 1

What is the primary distinction between an operating lease and a finance lease under US GAAP (ASC 842)?

Accepted Answer

A finance lease transfers substantially all risks and rewards of ownership; an operating lease does not

Answer

An operating lease is always longer in term

Answer

A finance lease requires no down payment

Answer

An operating lease cannot be renewed

Question 2

What is the Equipment Leasing and Finance Association (ELFA) primarily known for?

Accepted Answer

Being the trade association representing the equipment finance and leasing industry in the US

Answer

Regulating equipment lease interest rates

Answer

Issuing CLFP certifications

Answer

Providing equipment appraisals

Question 3

Which type of equipment lease allows the lessee to acquire the equipment for $1 at the end of the lease term?

Accepted Answer

$1 Buyout Lease (Capital Lease)

Answer

Fair Market Value Lease

Answer

Operating Lease

Answer

TRAC Lease

Question 4

What does 'residual value' mean in equipment leasing?

Accepted Answer

The estimated value of leased equipment at the end of the lease term

Answer

The amount owed after the first payment

Answer

The lessee's credit score impact

Answer

The depreciation taken in year one

Question 5

What is a 'vendor program' in equipment leasing?

Accepted Answer

An arrangement where a manufacturer or dealer partners with a finance company to offer financing to their customers

Answer

A government subsidy for small equipment purchases

Answer

A lessee's bulk purchase discount program

Answer

A lessor's internal credit scoring system

Question 6

What is 'implicit rate' in a lease as defined under ASC 842?

Accepted Answer

The rate that discounts future lease payments and residual value to equal the fair value of the underlying asset

Answer

The interest rate charged by the lessor on late payments

Answer

The lessee's incremental borrowing rate

Answer

The annual depreciation rate of the equipment