Free CLFP Eligibility Questions and Answers

Question 1

What is a Bargain Purchase Option?

Accepted 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.

Answer

A method of accounting for transactions in which the seller-lessee records the sale , removes the property and related liabilities from its balance sheet, recognizes gain or loss from the sale and classifies the leaseback in accordance with proper lease accounting

Answer

1.) Created by Job Creation and Worker Assistance Act of 2002
2.) Provides beneficial depreciation acceleration for lessors.
3.) 30% - 100% upfront depreciation in year of purchase followed by MACRS (vary over years)
4.) only available on NEW equipment
5.) 50% extended through 2019

Answer

The estimated residual value of the leased property exclusive of any portion guaranteed by the lessee or by a third party unrelated to the lessor. If the guarantor is related to the lessor, the residual value is considered unguaranteed

Question 2

Why is sales tax complicated?

Accepted 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

Answer

The price at which the property could be sold at an arm's length transaction by unrelated parties.
1.) normal selling price, net volume discounts, for a lessor who manufacturer/dealer
2.) Cost, net volume discounts for a lessor that is note a manufacturer or dealer.

Answer

Regarding elements of an income statement, this represents income and expenses that are not generated by the usual course of business and are not considered extraordinary. An example would be interest expense.

Answer

1.) Revenue and expense are recognized in the period in which service is performed or goods are delivered, regardless of when payment is made.
2.) Matching of revenues and expenses

Question 3

What is Inception of the Lease?

Accepted Answer

The date lease commitment.

Answer

Accrual

Answer

Revenues and expenses are recorded when cash is received or paid.

Answer

[net sales] / [current assets/current liabilities]. this shows how man y $'s are made per one $ of working capital. a low ratio may mean that working capital is not being used efficiently. a very high ratio may mean not enough working capital for the current high sales environment.

Question 4

What are the benefits of accrual basis accounting?

Accepted 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.

Answer

Regarding elements of a balance sheet, a current asset consisting of interest or dividend-yielding holdings expected to be converted to cash within a year. Also called short term investments including stocks, bonds, CD's and time deposits. Listed at their original cost.

Answer

1.) may understate liabilities on balance sheet
2.) may overstate income on income statement
3.) not ideal for credit decisions

Answer

1.) Operating
2.) Direct financing (capital lease)
3) Sale-type (capital lease)
4) If lender is lending cash - typically capital lease
5) If lender is lending assets - typically operating lease

Question 5

What is PreTax income?

Accepted Answer

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

Answer

Regarding elements of a balance sheet, a current liability consisting of amounts owed to suppliers for goods and services purchased in connection with business operations.

Answer

Regarding elements of a balance sheet, assets consisting of resources not listed with any of the other categories. Examples may include intangible assets, patent, trademarks etc.

Answer

Regarding elements of a balance sheet, equity consisting of the total accumulated net income minus the total accumulated dividends since the company's founding.