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Equipment Leasing and Finance: Questions and Answers, Exams of Law

Chamberlain College of NursingLaw

A comprehensive q&a section covering various aspects of equipment leasing and finance. it delves into the historical context of leasing, explores key legal and accounting standards (like fasb 13 and revenue ruling 55-540), and examines the tax implications and advantages of leasing. The questions and answers cover topics such as lease classification, tax regulations, and the reasons behind the popularity of equipment leasing.

Typology: Exams

2024/2025

Available from 04/23/2025

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CLFP – Terms (Questions With Fully Explained
Solutions)
Equipment Lease Correct Ans - A transaction in which use and
posession but not title to tangible property, is transfered for
consideration.
Section 38 Property Correct Ans - IRS (tax) defines personal
property that can be leased as depreciable property.
Third Party Leasing Correct Ans - Unrelated Maufacturer, Dealer
or Broker, the independent lessor and the lessee.
Balance sheet
(Op Lease) Correct Ans - Includes
Assets
C ash
A sset
T otal assets
Liabilities
S ecurity deposit
E quity
T otal liabilities
Income statement
(Op Lease) Correct Ans - Includes
I ncome
R ental
E xpense
D epreciation
N et Income
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CLFP – Terms (Questions With Fully Explained

Solutions)

Equipment Lease Correct Ans - A transaction in which use and posession but not title to tangible property, is transfered for consideration. Section 38 Property Correct Ans - IRS (tax) defines personal property that can be leased as depreciable property. Third Party Leasing Correct Ans - Unrelated Maufacturer, Dealer or Broker, the independent lessor and the lessee. Balance sheet (Op Lease) Correct Ans - Includes Assets C ash A sset T otal assets Liabilities S ecurity deposit E quity T otal liabilities Income statement (Op Lease) Correct Ans - Includes I ncome R ental E xpense D epreciation N et Income

Balance sheet (Cap Lease) Correct Ans - Includes Assets C ash M minimum lease pmts U nearned residual U nearned income N et investment T otal assets Liabilities S ecurity deposit E quity T otal liabilities Income statement (Cap Lease) Correct Ans - Lease income Net income Revenue Ruling 55-540 Correct Ans - Lease Classification for tax (IRS) purposes Ruling 55-540 Criteria - Not a Lease if: Correct Ans - Any portion of payment is applied tot he equity position Ruling 55-540 Criteria - Not a Lease if: Correct Ans - Title transfers automatically Ruling 55-540 Criteria - Not a Lease if: Correct Ans - Payments are an inordinately large portion of the OEC Ruling 55-540 Criteria - Not a Lease if: Correct Ans - The rental payments greatly exceed the current FMV

Statute of Whales Correct Ans - 1284 AD Used in England to deal directly with the leasing of personal property Industrial Revolution Correct Ans - 1700s - Railroad industry sought financing for the railcars because they could only afford the train tracks Philadelphia Plan Correct Ans - 1700s Industrial Revolution The most well know finance plan of the time Section 167 Correct Ans - Issued by IRS in 1950s to stimulate the economy after WWII and for the advancement of technology 55-540 - Criteria Correct Ans - P - Payments cannot exceed the FMV 55-540 - Criteria Correct Ans - A - no Automatic title transfer 55-540 - Criteria Correct Ans - I - No portion of payment classified as interest 55-540 - Criteria Correct Ans - N - No nominal purchase option 55-540 - Criteria Correct Ans - E - payments cannot exceed the original purchase price 55-540 - Criteria Correct Ans - E - lessee cannot contribute tot he equity Investment Tax Credit Correct Ans - 1960s credit a taxpayer could claim on tax return which is a direct offset to tax liability (new equipment)

Accelerated Depreciation Correct Ans - allows the owner of equipment to depreciate for tax purposes faster which results in faster tax benefits Revenue Procedure 75-21 Correct Ans - Used to determine what IS a tax lease Revenue Procedure 75-21 Correct Ans - initial minimum investment made by lessor Revenue Procedure 75-21 Correct Ans - lease term and renewal options defined in the lease Revenue Procedure 75-21 Correct Ans - defined purchase and sales rights must not be less than FMV Revenue Procedure 75-21 Correct Ans - no investment by lessee Revenue Procedure 75-21 Correct Ans - lessee cannot make a loan to lessor for the lease or guaranty the lessor's loan used to pay for equipment Revenue Procedure 75-21 Correct Ans - lessor must be able to demonstrate they intend to make a profit from more than just tax benefits ERTA Correct Ans - 1981 Economic Recovery Tax Act Created ACRS ACRS Correct Ans - Accelerated Cost Recovery System TRA 86 Correct Ans - Tax Reform Act of 1986 Eliminated ITC Strengthened AMT