1. Jilliard entered into a bareboat Subcharter Agreement with BOEG pursuant to which Jilliard will sublease the 5 leased barges to BOEG for an initial term of 4 years at a cost of $1.13 million per year. The term will be automatically renewed for 3 consecutive periods of 4 years each after the end of the initial term unless otherwise terminated by mutual agreement of the parties. Each renewal period will include a 5% increase in the annual lease cost. However, Jilliard is close to finalizing negotiations to purchase the asphalt barges from the lessor (see additional information later in this case). If this occurs, Jilliard will sell the barges to BOEG immediately at cost plus a 2.5% handling and delivery fee, and the Subcharter Agreement will be cancelled. Each barge has an approximate fair market value of $1.95 million.

2. Since BOEG does not have the internal resources to operate the asphalt barges. However, one of Jilliards consolidated affiliates is a personnel staffing company that provides personnel for all of Jilliards related consolidated entities. So, a 6-month Transition Services Agreement was entered into between the personnel staffing company and BOEG. The Transition Services Agreement requires the personnel staffing company to provide the personnel to operate each of the vessels acquired by BOEG at the same levels as they had been provided to the affiliates in the past. Such services include the vessels crew; the personnel who control the vessel logistics/dispatch center; the supervisors of such personnel; and personnel who address, resolve and otherwise handle operating conditions and problems relating to the transition services. Normal operating expenses (e.g., salaries, fuel, groceries) incurred by Jilliard will be rebilled to BOEG, plus an indirect overhead charge of 5%. The agreement will terminate upon the earlier of 30 days notice by either party or 6 months after the closing date of the agreement unless extended and/or renewed by the mutual agreement of both parties. At this time, management does not have an estimate of the total duration of the contract as it depends on BOEGs desire and ability to hire the necessary personnel. Services are to be provided by the personnel staffing company until the earlier of: (i) The termination of the Transition Services Agreement, or (ii) The date on which BOEG provides its own personnel to operate the vessels (with 30 days notice).

3. Jilliards principal owner entered into a Non-Competition Agreement with BOEG pursuant to which neither Jilliard nor its subsidiaries will engage in the business of transporting black oil products for a period of 3 years form the date of the agreement.

4. Jilliard assigned their existing black oil marine transportation customer contracts to BOEG. As mentioned above, Jilliard is negotiating the purchase of the 5 asphalt barges from FLC, and the purchase appears likely to occur on or about November 4, 20X7. Under the terms of the purchase agreement, Jilliard will exchange 12, 30,000 barrel capacity, clean tank barges and $2,750,000 in cash for the 5 asphalt barges. The 12 clean tank barges are currently owned by Jilliards subsidiaries as follows: 3 are owned by A1 Transport, 4 are owned by Phare Intermodal, and 5 are owned by Intercoastal Shipping. Each clean tank barge has a market value of approximately $535,000. These clean tank barges will never leave possession of Jilliards subsidiaries since Jilliard will immediately lease back the 12 clean tank barges from FLC. The existing lease agreement with FLC will not be modified, but the 12 clean tank barges will replace the 5 asphalt barges as the object of the lease.

How should Jilliard account for:

a. the purchase of the 5 asphalt barges from Fantail Leasing Company (FLC)?

b. the sale of the 12 clean tank barges to FLC?

c. the replacement of the 5 asphalt barges with the 12 clean tank barges as the object of the extant lease between Jilliard and FLC?

d. the sale of the 5 asphalt barges to BOEG? Be sure to indicate how Jilliard should treat gain(s) or loss(es) for each situation and to fully discuss possible alternate treatment options.