Reference no: EM132652504

ABC Logistics Inc. provides transportation and logistics services to customers through a network of offices in North and South America. The Company contracts fleets of shipping vessels, trucks, and aircraft to provide regional, long-haul, and international shipments of its goods. In addition, ABC contracts warehouse operators across North America for use of their facilities as distribution centers that temporarily store goods in transit. ABC has entered into the following contracts with the vendors identified below.

• ABC enters into a contract with XYZ Shipping Inc. to use its shipping vessels to transport its goods from North America to South America.

XYZ has a fleet of 25 multi-use shipping vessels, each of which has the capacity to hold 1,000 shipping containers.
ABC enters into a contract with DEF Air Transport Inc. to use its aircraft to transport its goods from South America to North America. DEF has a fleet of 50 multi-use aircraft, each of which has the capacity to hold 500 shipping pallets of its goods.

The terms of the contracts are as follows:

1. XYZ Shipping
2. The contract term is for the duration of the voyage to transport ABC's cargo from Los Angeles to Lima, Peru. ABC does not have discretion to change the departure or arrival ports without a renegotiation of the contract fees.
3. SB0829, a commercial shipping vessel in XYZ's fleet, is dedicated to delivering ABC's cargo for the term of the contract. XYZ cannot substitute SB0829 with another vessel in its fleet nor can it use SB0829 to transport goods for other customers. 
4. The contract identifies the shipping containers and acceptable cargo to be transported on the ship as well as the transportation route. ABC does not have discretion to change the identified cargo without renegotiating the contract fees. 
5. XYZ is responsible for the safe passage of the cargo, as well as operation and maintenance of SB0829. The crew determines the ship's route, speeds, and date of departure from Los Angeles. In addition, ABC cannot, under any circumstances, replace XYZ's crew.
6. DEF Air Transport
7. The contract term is five years. 
8. FBA1231, a commercial aircraft in DEF's fleet, is dedicated to delivering ABC's shipping pallets during the term of the contract. 
9. ABC 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. DEF provides the aircraft's pilot and crew, and ABC instructs DEF accordingly. 
10. While ABC determines what cargo will be transported throughout the term of the contract, certain restrictions prevent ABC from shipping hazardous materials. 
11. ABC 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, DEF cannot use the excess storage space to ship products of its other customers.

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

Prepare a memorandum addressing the impact (if any) of ASC 842 on ABC's contracts with special attention to the two following issues:

Question 1. Determine whether each of ABC's vendor contracts contains an identified asset.

Question 2. Determine whether each contract conveys the right to control the use of the identified asset to ABC Logistics.