Stellar Bright Solar $($SBS$)$ is a business that contracts to develop, construct, and operate solar power plants.

SBS entered into a contract to support the Big Desert solar power plant. According to the contract terms, SBS is responsible for the day$-$to$-$day operations of Big Desert as well as for general maintenance and repairs. Big Desert expects SBS to provide routine maintenance for the continued operation of the plant and respond to equipment breakdowns and failures by providing immediate repairs. In addition, the terms of the contract require SBS to procure the necessary materials to operate, maintain, and repair the plant. To comply with this requirement, the Company must maintain a certain level of materials and supplies $($the $$spare parts$)$ at all times.

On a regular basis, SBS reviews a listing provided by Big Desert of recommended spare parts for various components of the solar power plant and procures the necessary parts. Vendors deliver the parts to SBS along with a complete listing describing the quantity and cost of the parts provided. SBS maintains the listing and uses it to track expected usage of the spare parts, as well as to determine their expected useful lives.

The spare parts consist of customized and generic parts that vary in cost$,$ procurement time, expected usage $($i$.$e$.,$ emergency replacement, standard replacement$),$ and expected useful life. The Company uses the composite depreciation method for substantially all of the plant, and it expenses all major plant maintenance.

Required:

How should SBS classify the spare parts that it expects to use within one year: as inventory or as a prepaid$/$other current asset?

Find and cite the part of the codification defining inventory. Make as good a case as you can for why the spare parts might be appropriately classified as inventory.

Find and cite the parts of the codification defining prepaid expenses and current assets. Make as good a case as you can for why the spare parts might be appropriately classified as a prepaid$/$other current asset.

Based on your analysis above, conclude with your recommendation about whether there is better support for classifying spare parts as inventory or a prepaid$/$other current asset.

Format and Technical Requirements

Format

$1-$page Executive Summary

Maximum three $(3)$ pages of double$-$spaced text $($excl$.$ Exec. Summary$)$

Appendices, if needed

Please use Times New Roman font with font size of $12$

Assignment Requirements

Identify and describe the plausible options$/$issues that could be the correct answer.

Use the FASB Codification and any other resources to determine the answers.

Explain and support your answers using citations & source references.

Provide an Executive Summary including an overview of your discussion and recommendations.