CLP Lease Law, Tax, and Accounting 1 — Questions and Answers
Question 1: Which UCC article governs the leasing of goods in the United States?
- Article 1
- Article 2
- Article 2A (Correct answer)
- Article 9
Correct answer: Article 2A
Article 2A of the Uniform Commercial Code covers leases of personal property and outlines the rights and responsibilities of parties involved.
Question 2: How is a capital lease typically reported on a lessee’s balance sheet under GAAP?
- Only as a liability
- Only as an expense
- As both an asset and a liability (Correct answer)
- Not recorded at all
Correct answer: As both an asset and a liability
Capital leases are recorded as both an asset and a liability, reflecting the right to use the asset and the obligation to make payments.
Question 3: Which of the following is a tax advantage of a true lease for the lessee?
- Accelerated depreciation
- Capital gains treatment
- Deductibility of lease payments (Correct answer)
- Recognition of asset ownership
Correct answer: Deductibility of lease payments
In a true lease, the lessee may be able to deduct lease payments as an operating expense, reducing taxable income.
Question 4: What is the primary difference between a lease and a secured loan under UCC rules?
- A lease includes an interest rate.
- A lease provides usage rights without ownership. (Correct answer)
- A loan requires monthly rent.
- A lease reduces credit risk.
Correct answer: A lease provides usage rights without ownership.
A lease grants the right to use an asset, while a secured loan typically results in the transfer of ownership and requires a security interest.
Question 5: Which entity typically claims depreciation on leased equipment in a true lease?
- Lessee
- Lender
- Lessor (Correct answer)
- Broker
Correct answer: Lessor
In a true lease, the lessor retains ownership and is entitled to take depreciation deductions for tax purposes.
Question 6: Which standard governs lease accounting for public companies in the U.S.?
- FASB 13
- ASC 842 (Correct answer)
- IFRS 16
- GAAP 203
Correct answer: ASC 842
ASC 842 is the accounting standard that requires companies to recognize lease assets and liabilities on the balance sheet.
CLP Lease Law, Tax, and Accounting 1
Which UCC article governs the leasing of goods in the United States?