Logistical Logistics Inc. (Logistical Logistics or the Company) provides transportation and logistics services to customers throughout 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 customer 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. Assume the Company has adopted the new leasing standard, ASC 842, Leases.

The Company has entered into the following contracts with the vendors identified below.

Logistical Logistics enters into a contract with See Boat Inc. (See Boat) to use its shipping vessels to transport customer 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.

Logistical Logistics enters into a contract with Fly-By-Air Inc. (Fly-By-Air) to use its aircraft to transport customer 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 customer goods.

Logistical Logistics enters into a contract with Trucking Co. Inc. (Trucking Co.) to use its trucks to transport customer 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.

Logistical Logistics enters into a contract with Warehouse Co. Inc. (Warehouse Co.) to store up to 18,000 shipping pallets of customer goods at one of Warehouse Co.s locations. Warehouse Co. has the capacity to store 20,000 shipping pallets of goods.

The terms of the shipping contracts are as follows:

See Boat

• The contract term is for the voyage to transport Logistical Logistics cargo from Los Angeles to Shanghai. Logistical 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 Boats fleet, is dedicated to delivering Logistical Logistics cargo for the term of the contract. See Boat cannot substitute SB0829 with another vessel in its fleet.
• The contract identifies the shipping containers and acceptable cargo (e.g., semiconductors) to be transported on the ship as well as the transportation route. Logistical Logistics does not have discretion to change the identified cargo without renegotiating the contract fees.

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

The contract term is five years

o FBA1231, a commercial aircraft in Fly-By-Airs fleet, is dedicated to delivering Logistical Logistics shipping pallets during the term of the contract.

o Logistical 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 aircrafts pilot and crew, and Logistical Logistics instructs Fly-By-Air accordingly.

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

o Logistical 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 othercustomers.

Trucking Co.

• The contract term is five years.
• Trucking Co. must deliver Logistical Logistics shipments within three weeks of the Companys 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.
• Logistical 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 shipments delivery date (within the three-week period), as well as the shipping route.

Warehouse Co.

• The contract term is 10 years.

Logistical Logistics can store up to 18,000 shipping pallets at one specified Warehouse Co. location. Logistical Logistics will be charged for storage of 18,000 shipping pallet

• regardless of the actual number of pallets stored, and Warehouse Co. cannot use any of Logistical Logistics unused storage space for other storageneeds.
• Warehouse Co. can use the remaining space in its warehouse for other storage needs.
• Warehouse Co. cannot relocate Logistical Logistics inventory to another facility.
• Logistical Logistics has the right to decide which shipping pallets are placed in storage and when they can be removed.
• Warehouse Co. provides the loading and unloading services for the warehouse activities, both of which are dependent on Logistical Logistics decisions about which shipping pallets are placed in storage and when they can be removed.

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

Note that you have been provided with Handout 1, which contains the risks of material misstatement (RoMMs) matrix, and Handout 2, which is Logistical Logistics control matrix.

Handout 1

RoMM No.	RoMM Description
1	Right-of-use (ROU) assets and lease liabilities are not valued correctly, on the basis of the underlying assumptions (e.g., lease terms, discount rate, lease payments) and classification of the lease (i.e., operating or financing).
2	Lease expense recorded does not represent valid expense.
3	Contracts or arrangements containing a lease are not identified as a lease.
4	The lease is not appropriately classified on the basis of the criteria under ASC 842.
5	The entity identifies ROU assets and lease liabilities for which it does not have the rights or obligations to.
6	Contracts or arrangements are determined to be a lease when the criteria under ASC 842 have not been met.
7	Impairment indicators may exist for ROU assets, but are not known to management.
8	Lease expense is not recorded (1) at correct amounts, (2) in the proper accounts, or (3) in the proper period.

Handout 2

Control No.	Control Title	Control Description
L 1	Contract Review Contract database is reviewed by each department leader.	On a quarterly basis, each department leader (e.g., Sales, Treasury, Human Resources, IT, Tax), with appropriate knowledge of the contracts entered into by his or her department, reviews the database to verify that (1) all contracts (i.e., new, existing, or modified), in accordance with the entitys accounting policies, have been included in the database and (2) all events or circumstances requiring reassessment have been identified. Each department leader provides representation to the Lease Accountant of the completeness and accuracy of the database, as well as, the contracts identified that require reassessment to the best of his or her knowledge.
L 2	Lease Terms Review Controller reviews and approves the key contract terms entered into the lease software.	The Controller, with appropriate knowledge of the entitys lease arrangements and the accounting framework and principles under the requirements of ASC 842, reviews the contract listing (e.g., contract database extract) to verify that all the key contract terms for the entitys lease arrangements were entered by the Lease Accountant into the lease software. The Controller will verify the completeness and accuracy of the contract listing (e.g., contract database extract) by reviewing key terms against the lease contracts. Any differences identified as a result of the Controllers review are investigated and resolved, and all questions are addressed. The Controller then approves and signs off on the contract listing (e.g., contract database extract).
L 3	Review of Reconciliations Controller reviews and approves all general ledger reconciliations for the lease specific accounts.	The Controller reviews the lease account balance reconciliations, on a quarterly basis, along with the detailed lease analysis supporting the amounts recorded, as prepared by the Lease Accountant. After performing the review, any differences identified as a result of the review are investigated and resolved, and all questions are addressed. The Controller then approves and signs off on the lease account balance reconciliations.