As the Presto Hospitality memo in this chapter illustrates, accounting issues are not always straightforward. The following questions are intended to highlight some of the many judgments and alternatives present in that memo. Considering that memo, respond to the following. Use the Presto Hospitality memo, and your own thinking, to respond. (Codification research is not necessary for this exercise.)

Why is it important for Presto to determine whether the concessions agreement is a lease? What impacts could this conclusion have on Prestos accounting?

Describe the steps involved in performing the analysis of which concession locations/rights are considered identified assets.

What would have happened if Presto had concluded that the arrangement does not involve identified assets? What analysis would have been performed next?

What value did the airport kiosk implementation guidance example contribute to Prestos evaluation of its identified assets?

What value did the Retail Unit A implementation guidance example contribute to Prestos evaluation of its identified assets?

The Conclusion section laid out not only the conclusion for each concession right/location, but also the rationale. Summarize the rationale described for each conclusion reached.

In our case, like this airport kiosk example, Stadium Co.: a) has the contractual right to substitute the location of the portables and has access to alternate spaces that could be used; and b) would incur only minimal (if any) cost in substituting the space. Therefore, this substitution right is substantive. This analysis may be less clear when performed for fixed concession stands, which could involve additional supplier cost to substitute. Let me know if you'd like me to research that issue next. Thanks for letting me assist with this question. Jenn Implementation guidance in ASC 84210 provides an example involving airport concession space that is similar to the portable carts in our arrangement: >> Example 2-Concession Space 55-52 A coffee company (Customer) enters into a contract with an airport operator (Supplier) to use a space in the airport to sell its goods for a three-year period. The contract states the amount of space and that the space may be located at any one of several boarding areas within the airport. Supplier has the right to change the location of the space allocated to Customer at any time during the period of use. There are minimal costs to Supplier associated with changing the space for the Customer: Customer uses a kiosk (that it owns) that can be moved easily to sell its goods. There are many areas in the airport that are available and that would meet the specifications for the space in the contract. 55-53 The contract does not contain a lease. 55-54 Although the amount of space Customer uses is specified in the contract, there is no identified asset. ...[T]he contract is for space in the airport, and this space can change at the discretion of Supplier. Supplier has the substantive right to substitute the space Customer uses because: a. Supplier has the practical ability to change the space used by Customer throughout the period of use. There are many areas in the airport that meet the specifications for the space in the contract, and Supplier has the right to change the location of the space to other space that meets the specifications at any time without Customer's approval. b. Supplier would benefit economically from substituting the space. There would be minimal cost associated with changing the space used by Customer because the kiosk can be moved easily. Supplier benefits from substituting the space in the airport because substitution allows Supplier to make the most effective use of the space at boarding areas in the airport to meet changing circumstances. In our case, like this airport kiosk example, Stadium Co.: a) has the contractual right to substitute the location of the portables and has access to alternate spaces that could be used; and b) would incur only minimal (if any) cost in substituting the space. Therefore, this substitution right is substantive. This analysis may be less clear when performed for fixed concession stands, which could involve additional supplier cost to substitute. Let me know if you'd like me to research that issue next. Thanks for letting me assist with this question. Jenn In our case, like this airport kiosk example, Stadium Co.: a) has the contractual right to substitute the location of the portables and has access to alternate spaces that could be used; and b) would incur only minimal (if any) cost in substituting the space. Therefore, this substitution right is substantive. This analysis may be less clear when performed for fixed concession stands, which could involve additional supplier cost to substitute. Let me know if you'd like me to research that issue next. Thanks for letting me assist with this question. Jenn Implementation guidance in ASC 84210 provides an example involving airport concession space that is similar to the portable carts in our arrangement: >> Example 2-Concession Space 55-52 A coffee company (Customer) enters into a contract with an airport operator (Supplier) to use a space in the airport to sell its goods for a three-year period. The contract states the amount of space and that the space may be located at any one of several boarding areas within the airport. Supplier has the right to change the location of the space allocated to Customer at any time during the period of use. There are minimal costs to Supplier associated with changing the space for the Customer: Customer uses a kiosk (that it owns) that can be moved easily to sell its goods. There are many areas in the airport that are available and that would meet the specifications for the space in the contract. 55-53 The contract does not contain a lease. 55-54 Although the amount of space Customer uses is specified in the contract, there is no identified asset. ...[T]he contract is for space in the airport, and this space can change at the discretion of Supplier. Supplier has the substantive right to substitute the space Customer uses because: a. Supplier has the practical ability to change the space used by Customer throughout the period of use. There are many areas in the airport that meet the specifications for the space in the contract, and Supplier has the right to change the location of the space to other space that meets the specifications at any time without Customer's approval. b. Supplier would benefit economically from substituting the space. There would be minimal cost associated with changing the space used by Customer because the kiosk can be moved easily. Supplier benefits from substituting the space in the airport because substitution allows Supplier to make the most effective use of the space at boarding areas in the airport to meet changing circumstances. In our case, like this airport kiosk example, Stadium Co.: a) has the contractual right to substitute the location of the portables and has access to alternate spaces that could be used; and b) would incur only minimal (if any) cost in substituting the space. Therefore, this substitution right is substantive. This analysis may be less clear when performed for fixed concession stands, which could involve additional supplier cost to substitute. Let me know if you'd like me to research that issue next. Thanks for letting me assist with this question. Jenn