FASB codification memo assignment

ACCT387

Fall 2020

Professor Zhang

ACCT387 CASE General Instruction

This purpose of this writing project is to enhance your understanding of lease accounting and to improve your business writing skills.

Due dates:

1st submission –Tuesday, October 6 on Canvas

Optional 2nd submission – Tuesday, November 12, on Canvas

*** Read through entire project at least twice before you begin. This will help you familiarize yourself with all of the important parts***

Plagiarism and other types of academic dishonesty will be checked. Failure to properly cite the writing of others or submission of work of others as your own is a serious Honor Code violation.

This is an individual assignment in terms of actual writing and analysis, but you can discuss your responses with your peers. THE ACTUAL WRITING AND ANALYSIS MUST REPRESENT YOUR OWN WORK.

Format:

· Your case writeup should be organized as an internal research memo from an associate to the CFO of Logical Logistics.

· It should have the following sections:

· Executive summary (one paragraph with condensed description of an issue and your suggested resolution).

· Segments with appropriate segment headings

· Address one question at a time

· Description of the facts

· Appropriate accounting literature

· The solutions to the questions

· Conclusion

· References (Included in the footnotes or at the end of the memo).

· Appendixes or Exhibits, if any.

· The minimum length should be 3 pages.

· For more information on how to write a memo, please refer to the additional resources at the end of case instruction.

Writing:

· The memo should be well organized, use appropriate vocabulary, be free of punctuation, grammatical, or spelling errors.

· The memo must cite appropriate sources of accounting authority to support your discussion.

· The memo should have good logical flow of thought and be well-readable.

· The memo should be concise and not verbose.

· The memo should have a logical paragraph structure.

· The tone of the memo should be appropriate to the audience.

General Note on Writing Style:

This is a business research memo, not an essay. As such it must employ writing style appropriate to business memos. The memo must:

· Have clear, concise and to-the-point style.

· Appropriately employ bullet points and sections which deal with different issues pertinent to the answer.

· Appropriately cite references. Note that it is sufficient to either have “References” section in the end, or have footnotes with citations.

Grading Policy:

· The assignment will be graded on the following two criteria:

· CONTENT (30 points) - Original thinking and an ability to focus on the issue and the relevance of your discussion.

· WRITING (10 points) – Quality of writing including language, spelling, punctuation and adherence to report requirements.

How to Find Accounting Standard:

The FASB codification can be accessed at s http://aaahq.org/ascLogin.cfm. Use the following username and password.

· Username: AAA51924

· Password: 2Kp5dWV

You can refer to this website on how to cite FASB codification: https://libraryguides.lib.iup.edu/c.php?g=563354&p=3878442

Additional Resources:

· Purdue Online Writing Lab provides excellent resources for college writing projects. You can refer to this website https://owl.english.purdue.edu/owl/resource/590/02/ for more information on how to write a memo by using the search function of the website.

· The Writing Center at George Mason University has many tips for constructing effective writing in accounting. Topics include conciseness, clarity, and revision. http://writingcenter.gmu.edu/writing-resources

ACCT387 Case

Logical Logistics Inc

Part 1

Logical Logistics Inc. (Logical Logistics or the “Company”) provides transportation and logistics services to customers through a network of offices in North America, South America and Asia. The Company contracts fleets of shipping vessels, trucks, and aircraft to provide regional, long-haul, and international shipments of its goods. In addition, the Company contracts warehouse operators across North America for use of their facilities as distribution centers that temporarily store goods in transit. The Company has entered into the following contracts with the vendors identified below.

Logical Logistics enters into a contract with See Boat Inc. (See Boat) to use its shipping vessels to transport its goods from North America to Asia. See Boat has a fleet of 25 multi-use shipping vessels, each of which has the capacity to hold 1,000 shipping containers.

Logical Logistics enters into a contract with Fly-By-Air Inc. (Fly-By-Air) to use its aircraft to transport its goods from South America to North America. Fly-By-Air has a fleet of 50 multi-use aircraft, each of which has the capacity to hold 500 shipping pallets of its goods.

Logical Logistics enters into a contract with Trucking Co. Inc. (Trucking Co.) to use its trucks to transport goods from distribution centers to retail stores across North America. Trucking Co. has a fleet of 1,500 multi-use long-haul trucking carriers, each of which has the capacity to hold 100 shipping pallets of goods.

The terms of the contracts are as follows:

· See Boat

· The contract term is for the duration of the voyage to transport Logical Logistics’s cargo from Los Angeles to Shanghai. Logical Logistics does not have discretion to change the departure or arrival ports without a renegotiation of the contract fees.

· SB0829, a commercial shipping vessel in See Boat’s fleet, is dedicated to delivering Logical Logistics’s cargo for the term of the contract. See Boat cannot substitute SB0829 with another vessel in its fleet nor can it use SB0829 to transport goods for other customers.

· The contract identifies the shipping containers and acceptable cargo (e.g., semiconductors) to be transported on the ship as well as the transportation route. Logical Logistics does not have discretion to change the identified cargo without renegotiating the contract fees.

· See Boat is responsible for the safe passage of the cargo, as well as operation and maintenance of SB0829. The crew determines the ship’s route, speeds, and date of departure from Los Angeles. In addition, Logical Logistics cannot, under any circumstances, replace See Boat’s crew.

· Fly-By-Air

· The contract term is five years.

· FBA1231, a commercial aircraft in Fly-By-Air’s fleet, is dedicated to delivering Logical Logistics’s shipping pallets during the term of the contract.

· Logical Logistics determines (1) the airports from and to which goods are shipped and received and (2) the order in which deliveries are made to the airports. Fly-By-Air provides the aircraft’s pilot and crew, and Logical Logistics instructs Fly-By-Air accordingly.

· While Logical Logistics determines what cargo will be transported throughout the term of the contract, certain restrictions prevent the Company from shipping flammable materials.

· Logical Logistics has the right to send the aircraft regardless of whether its cargo levels meet the full storage capacity of the aircraft. If FBA1231 is below capacity, Fly-By-Air cannot use the excess storage space to ship products of its other customers.

· Trucking Co.

· The contract term is five years.

· Trucking Co. must deliver Logical Logistics’s shipments within three weeks of the Company’s notification that it has pallets of customer goods ready for shipping.

· Trucking Co. may choose any truck from its fleet to fulfill the shipping request.

· Logical Logistics may request shipment of 25 to 100 shipping pallets of goods in a single request. (Individual shipping requests generally do not exceed 50 shipping pallets.)

· Trucking Co. has the right to use any excess storage space to ship products of its other customers.

· Trucking Co. determines the shipment’s delivery date (within the three- week period), as well as the shipping route.

The CFO of Logical Logistics recognizes that the new leasing standard contains certain provisions that may affect how the Company treats contracts of this nature.

Part 2

Logical Logistics needs additional office space to accommodate expansion. The CFO of Logical Logistics wants to avoid income statement effects that would disrupt its attempt to “smooth” income over time

Required:

Prepare a memorandum to address following 4 questions:

For Part 1, Using the FASB codification ASC842, address the impact (if any) of the new leasing standard on Logical Logistics’s arrangements for the following considerations:

1. Determine whether each of Logical Logistics’s vendor contracts contains an identified asset.

2. Determine whether each contract conveys the right to control the use of the identified asset to Logical Logistics.

For Part 2, using the course materials that you have learnt from chapter 15 (no need to cite any FASB codification), address:

3. What lease classification would the CFO prefer?

4. Would meeting its reporting objective be more difficult or less difficult under IFRS?