Jilliard Corporation (Jilliard) and its consolidated affiliates conduct operations within two business segments: marine transportation and marine equipment repair services. However, the marine transportation services portion of the business is the primary business line providing transportation for raw and refined petroleum, liquid petrochemicals, black oil, pressurized gas products, and other chemicals along Gulf of Mexico Intercoastal Waterway and Mississippi River Systems. Early in 20X6, Jilliard committed to the purchase of a large vessel that would violate certain debt covenants restricting the net capital expenditures that Jilliard is allowed to make in a given year. To offset this expenditure and remain in compliance with the net expenditure requirements of the debt covenant, management explored the sale of other marine assets. A motivated buyer for Jilliards black oil transportation assets was identified, and Jilliard decided to sell its black oil assets and exit the black oil marine transportation business. Due to the nature of the industry, Jilliard often purchases and sells marine transportation equipment in the normal course of business. Pursuant to the terms of Purchase and Sale Agreement dated June 23, 20X6, Jilliard sold the black oil marine barge transportation business to Black Oil Energy Group (BOEG). The closing date was August 8, 20X6. The transaction includes (a) the sale of 19 black oil barges and 13 push boats, and (b) the sublease of 5 asphalt barges. The 19 black oil barges and 13 push boats represent the main operating assets owned by Jilliards black oil marine barge transportation affiliate. The 5 asphalt barges are being leased from Fantail Leasing Company (FLC), an unrelated third party.

Following are the key provisions of the Purchase and Sale Agreement between Jilliard and BOEG:

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. Required:

1. Prepare a professional, one-page diagram of the movement of assets among the entities. (This diagram should be placed in your appendix. It does not count in the overall memo page limit.)

2. How should Jilliard account for the sale of assets to Black Oil Energy Group? In your answer, include and explain all applicable ASC sections and provide sample journal entries and financial statement presentation templates to record and report the transaction. Also explore how each anticipated change to the contract in the future (e.g., Jilliards purchase and resale of the leased black oil barges to BOEG) would affect the accounting treatment for the transaction.

3. 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. Your memo should explore why as well as why not for each possible treatment (using applicable ASC sections), and this discussion should provide valid support for the solution you recommend. After discussing alternatives, provide your one recommended solution and include sample journal entries and financial statement presentation templates for your recommended treatment of these transactions.

4. Identify one additional accounting-related issue not covered in the questions above and provide accounting research related to this issue from Jilliards perspective.