CLP Lease Law, Tax, and Accounting 3

Question 1

Under the Economic Recovery Tax Act provisions, the Modified Accelerated Cost Recovery System (MACRS) classifies most leased business equipment (5-year property) using which depreciation method?

Accepted Answer

200% declining balance switching to straight-line

Answer

5-year MACRS property uses the 200% declining balance method switching to straight-line when that method yields a larger deduction.

Question 2

A sale-leaseback transaction where the seller-lessee retains substantially all the risks and rewards of ownership would be accounted for as:

Accepted Answer

A failed sale and financing arrangement

Answer

When the seller-lessee retains substantially all risks and rewards, the transaction fails sale-leaseback criteria and is accounted for as a financing arrangement rather than a sale.

Question 3

Under the Statute of Frauds, a lease agreement for personal property must typically be in writing if the total lease payments exceed:

Accepted Answer

$5,000 (UCC Article 2A threshold)

Answer

UCC Article 2A requires a written lease agreement when total lease payments are $1,000 or more; however, many states set the Statute of Frauds threshold at $5,000 for personal property leases.

Question 4

Section 467 of the Internal Revenue Code addresses which specific leasing tax issue?

Accepted Answer

Deferred rent arrangements and prepaid rent accrual mismatches

Answer

IRC Section 467 governs leases with deferred or prepaid rent, requiring parties to accrue rent income and deductions based on an accrual method even if payments are uneven.

Question 5

Which of the following is a characteristic of a 'leveraged lease' from the lessor's perspective?

Accepted Answer

The lessor funds only 20-40% of the asset cost and borrows the rest on a non-recourse basis

Answer

In a leveraged lease, the lessor (equity participant) typically funds 20-40% of the asset cost while non-recourse debt from lenders funds the remainder, magnifying the lessor's tax benefits.

(CLP) Certified Leasing Professional Practice Test

(CLP) Certified Leasing Professional Practice Test

CLP Lease Law, Tax, and Accounting 3