Capital Transport, Inc.

(Capital Transport) 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 the customers goods. In addition, the Company contracts Store-All 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. The CFO of Capital Transport recognizes that the new leasing standard contains certain provisions that may affect how the Company treats contracts of this nature.

Capital Transport has a contract with Ship Corp. Inc. (Ship Corp.) to use their shipping vessels to transport goods from North America to Asia. Ship Corp. has a fleet of 25 multi-use shipping vessels, each of which has the capacity to hold 1,000 shipping containers.

The contract term is for the duration of the voyage to transport Capital Transports cargo from Los Angeles to Shanghai. Capital Transport does not have the discretion to change the departure or arrival ports without a renegotiation of the contract fees.

SC12, a commercial shipping vessel in Ship Corp.s fleet, is dedicated to delivering Capital Transports cargo for the term of the contract. Ship Corp. cannot substitute SC12 with another vessel in its fleet nor can it use SC12 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. Capital Transport does not have the discretion to change the identified cargo without renegotiating the contract fees.

Ship Corp. is responsible for the safe passage of the cargo, as well as operation and maintenance of SC12. The crew determines the ships route, speeds, and date of departure from Los Angeles. In addition, Capital Transport cannot, under any circumstances, replace Ship Corp.s crew.

Capital Transport has a contract with Air Freight Inc. (Air Freight) to use their aircraft to transport goods from South America to North America. Air Freight has a fleet of 50 multi-use aircraft, each of which has the capacity to hold 500 shipping pallets of goods.

AF24, a commercial aircraft in Air Freights fleet, is dedicated to delivering Capital Transports shipping pallets during the term of the contract. Air Freight cannot substitute AF24 with another aircraft in its fleet.

Capital Transport determines both the airports from and to which goods are shipped and received and the order in which deliveries are made to the airports. Air Freight provides the aircrafts pilot and crew, and Capital Transport instructs the pilot and crew accordingly.

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

Capital Transport has the right to deploy the aircraft regardless of whether the cargo levels meet the full storage capacity of the aircraft or not. If AF24 is below capacity, Air Freight cannot use the excess storage space to ship products of its other customers.

Capital Transport has a contract with Store-All Inc. (Store-All) to store up to 18,000 shipping pallets of goods at one of Store-Alls locations. Store-All has the capacity to store 20,000 shipping pallets of goods at that location.

The contract term is 10 years.

Capital Transport can store up to 18,000 shipping pallets at one specified Store-All location. Capital Transport will be charged for storage of 18,000 shipping pallets, regardless of the actual number of pallets stored, and Store-All cannot use any of Capital Transports unused storage space for other storage needs. However, Store-All may use the remaining space in its Store-All for other storage needs.

Store-All cannot relocate Capital Transports inventory to another facility.

Capital Transport has the right to decide which shipping pallets are placed in storage and when they can be removed.

Store-All provides the loading and unloading services for the Store-All activities, both of which are dependent on Capital Transports decisions about which shipping pallets are placed in storage and when they can be removed.

Required: Analyze the information above, and prepare a memorandum addressing the correct accounting for the transactions above. In your memo, specifically address the following items:

Apply and explain each of the requirements for a lease in the ASC 842

For those transactions that are or contain a lease, determine the type of lease indicated.

o If needed information is missing, identify the additional information needed, and provide a draft email to the CFO of Capital Transport requesting this information.

Record all entries for the entire contract period.

Show and explain all calculations for each journal entry, and use the ASC to support your assumptions and computations.