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

Under ASC 842, a finance lease transfers substantially all risks and rewards of ownership to the lessee, while an operating lease does not meet these criteria.

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

ELFA is the premier trade association representing companies in the $1 trillion equipment finance sector, advocating for the industry and providing education and research.

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

A $1 buyout lease (also called a capital lease) is structured so the lessee purchases the equipment for $1 at end of term, making ownership transfer the clear intent.

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

Residual value is the lessor's estimate of what the equipment will be worth at lease end, which directly impacts lease pricing and the lessor's risk.

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 vendor program is a partnership between an equipment manufacturer/dealer and a leasing/finance company to offer point-of-sale financing options to end-user customers.

CLFP - Certified Lease & Finance Professional Practice Test

CLFP - Certified Lease & Finance Professional Practice Test

CLFP Equipment Finance Fundamentals