Question

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 Boat’s 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 ship’s route, speeds, and date of departure from Los Angeles. In addition, Logistical Logistics cannot, under any circumstances, replace See Boat’s crew.

The contract term is five years

o   FBA1231, a commercial aircraft in Fly-By-Air’s 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 aircraft’s 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 Company’s 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 shipment’s 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 entity’s 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 entity’s 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 entity’s 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 Controller’s 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.

Answer 1

· See Boat

o The contract term is for the voyage to transport Logical Logistics’s cargo from Los Angeles to Shanghai. Logical Logistics does not have discretion to change the departure or arrival ports without a renegotiation of the contract fees.

o SB0829, a commercial shipping vessel in See Boat’s fleet, is dedicated to delivering Logical Logistics’s cargo for the term of the contract. See Boat cannot substitute SB0829 with another vessel in its fleet.

o The contract identifies the shipping containers and acceptable cargo (e.g., semiconductors) to be transported on the ship as well as the transportation route. Logical 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 ship’s route, speeds, and date of departure from Los Angeles. In addition, Logical Logistics cannot, under any circumstances, replace See Boat’s crew.

Determine whether of Logical Logistics’s vendor contracts contains an identified asset.

842-10-15-9

An asset typically is identified by being explicitly specified in a contract. However, an asset also can be identified by being implicitly specified at the time that the asset is made available for use by the customer.

842-10-15-10

Even if an asset is specified, a customer does not have the right to use an identified asset if the supplier has the substantive right to substitute the asset throughout the period of use. A supplier’s right to substitute an asset is substantive only if both of the following conditions exist:

a. The supplier has the practical ability to substitute alternative assets throughout the period of use (for example, the customer cannot prevent the supplier from substituting an asset, and alternative assets are readily available to the supplier or could be sourced by the supplier within a reasonable period of time).

b. The supplier would benefit economically from the exercise of its right to substitute the asset (that is, the economic benefits associated with substituting the asset are expected to exceed the costs associated with substituting the asset).

SB0829 is identified as the dedicated vessel in this contract. And See Boat cannot substitute SB0829, therefore, SB0829 IS the identified asset.

Determine whether contract conveys the right to control the use of the identified asset to the lessee.

842-10-15-4

To determine whether a contract conveys the right to control the use of an identified asset (see paragraphs 842-10-15-17 through 15-26) for a period of time, an entity shall assess whether, throughout the period of use, the customer has both of the following:

a. The right to obtain substantially all of the economic benefits from use of the identified asset (see paragraphs 842-10-15-17 through 15-19)

The SB0829 is dedicated to Logical Logistics, therefore, the company has the right to obtain substantially all of the economic benefits of the vessel. (met)

b. The right to direct the use of the identified asset (see paragraphs 842-10-15-20 through 15-26).

15-20

A customer has the right to direct the use of an identified asset throughout the period of use in either of the following situations:

a. The customer has the right to direct how and for what purpose the asset is used throughout the period of use (as described in paragraphs 842-10-15-24 through 15-26).

Logical Logistics can not make any decision in the vessel’s operation nor decide on how and for what purpose the SB0823’s will be used. (not met)

    b. The relevant decisions about how and for what purpose the asset is used are predetermined (see paragraph 842-10-15-21) and at least one of the following conditions exists:

        1. The customer has the right to operate the asset (or to direct others to operate the asset in a manner that it determines) throughout the period of use without the supplier having the right to change those operating instructions.

                    Logical Logistics does not operate the vessel nor direct the crew to operate the vessel. (not met)

        2. The customer designed the asset (or specific aspects of the asset) in a way that predetermines how and for what purpose the asset will be used throughout the period of use. (not applicable)

Logical logistics do not have the right to direct the use of the SB0829, therefore, the right to control the use of the asset is not connived.

842-10-15-4

To determine whether a contract conveys the right to control the use of an identified asset (see paragraphs 842-10-15-17 through 15-26) for a period of time, an entity shall assess whether, throughout the period of use, the customer has both of the following:

a. The right to obtain substantially all of the economic benefits from use of the identified asset (see paragraphs 842-10-15-17 through 15-19)

a. 842-10-15-17 To control the use of an identified asset, a customer is required to have the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use (for example, by having exclusive use of the asset throughout that period). A customer can obtain economic benefits from use of an asset directly or indirectly in many ways, such as by using, holding, or subleasing the asset. The economic benefits from use of an asset include its primary output and by-products (including potential cash flows derived from these items) and other economic benefits from using the asset that could be realized from a commercial transaction with a third party.

b. 842-10-15-18 When assessing the right to obtain substantially all of the economic benefits from use of an asset, an entity shall consider the economic benefits that result from use of the asset within the defined scope of a customer’s right to use the asset in the contract (see paragraph 842-10-15-23). For example:

i. If a contract limits the use of a motor vehicle to only one particular territory during the period of use, an entity shall consider only the economic benefits from use of the motor vehicle within that territory and not beyond.

ii. If a contract specifies that a customer can drive a motor vehicle only up to a particular number of miles during the period of use, an entity shall consider only the economic benefits from use of the motor vehicle for the permitted mileage and not beyond.

c. 842-10-15-19 If a contract requires a customer to pay the supplier or another party a portion of the cash flows derived from use of an asset as consideration, those cash flows paid as consideration shall be considered to be part of the economic benefits that the customer obtains from use of the asset. For example, if a customer is required to pay the supplier a percentage of sales from use of retail space as consideration for that use, that requirement does not prevent the customer from having the right to obtain substantially all of the economic benefits from use of the retail space. That is because the cash flows arising from those sales are considered to be economic benefits that the customer obtains from use of the retail space, a portion of which it then pays to the supplier as consideration for the right to use that space.

b. The right to direct the use of the identified asset (see paragraphs 842-10-15-20 through 15-26).

If the customer in the contract is a joint operation or a joint arrangement, an entity shall consider whether the joint operation or joint arrangement has the right to control the use of an identified asset throughout the period of use.

a. 842-10-15-20 A customer has the right to direct the use of an identified asset throughout the period of use in either of the following situations:

a. The customer has the right to direct how and for what purpose the asset is used throughout the period of use (as described in paragraphs 842-10-15-24 through 15-26).

             842-10-15-24 A customer has the right to direct how and for what purpose an asset is used throughout the period of use if, within the scope of its right of use defined in the contract, it can change how and for what purpose the asset is used throughout that period. In making this assessment, an entity considers the decision-making rights that are most relevant to changing how and for what purpose an asset is used throughout the period of use. Decision-making rights are relevant when they affect the economic benefits to be derived from use. The decision-making rights that are most relevant are likely to be different for different contracts, depending on the nature of the asset and the terms and conditions of the contract.

             842-10-15-25 Examples of decision-making rights that, depending on the circumstances, grant the right to direct how and for what purpose an asset is used, within the defined scope of the customer’s right of use, include the following:

    a. The right to change the type of output that is produced by the asset (for example, deciding whether to use a shipping container to transport goods or for storage, or deciding on the mix of products sold from a retail unit)

    b. The right to change when the output is produced (for example, deciding when an item of machinery or a power plant will be used)

    c. The right to change where the output is produced (for example, deciding on the destination of a truck or a ship or deciding where a piece of equipment is used or deployed)

    d. The right to change whether the output is produced and the quantity of that output (for example, deciding whether to produce energy from a power plant and how much energy to produce from that power plant).

             842-10-15-26 Examples of decision-making rights that do not grant the right to direct how and for what purpose an asset is used include rights that are limited to operating or maintaining the asset. Although rights such as those to operate or maintain an asset often are essential to the efficient use of an asset, they are not rights to direct how and for what purpose the asset is used and often are dependent on the decisions about how and for what purpose the asset is used. Such rights (that is, to operate or maintain the asset) can be held by the customer or the supplier. The supplier often holds those rights to protect its investment in the asset. However, rights to operate an asset may grant the customer the right to direct the use of the asset if the relevant decisions about how and for what purpose the asset is used are predetermined (see paragraph 842-10-15-20(b)(1)).

b. The relevant decisions about how and for what purpose the asset is used are predetermined (see paragraph 842-10-15-21) and at least one of the following conditions exists:

1. The customer has the right to operate the asset (or to direct others to operate the asset in a manner that it determines) throughout the period of use without the supplier having the right to change those operating instructions.

2. The customer designed the asset (or specific aspects of the asset) in a way that predetermines how and for what purpose the asset will be used throughout the period of use.

b. 842-10-15-21

The relevant decisions about how and for what purpose an asset is used can be predetermined in a number of ways. For example, the relevant decisions can be predetermined by the design of the asset or by contractual restrictions on the use of the asset.

Determine whether of Logical Logistics’s vendor contracts contains an identified asset.

842-10-15-9

An asset typically is identified by being explicitly specified in a contract. However, an asset also can be identified by being implicitly specified at the time that the asset is made available for use by the customer.

842-10-15-10

Even if an asset is specified, a customer does not have the right to use an identified asset if the supplier has the substantive right to substitute the asset throughout the period of use. A supplier’s right to substitute an asset is substantive only if both of the following conditions exist:

a. The supplier has the practical ability to substitute alternative assets throughout the period of use (for example, the customer cannot prevent the supplier from substituting an asset, and alternative assets are readily available to the supplier or could be sourced by the supplier within a reasonable period of time).

b. The supplier would benefit economically from the exercise of its right to substitute the asset (that is, the economic benefits associated with substituting the asset are expected to exceed the costs associated with substituting the asset).

FBA1231 is identified as the dedicated vessel in this contract. And See Boat cannot substitute SB0829, therefore, FBA1231 IS the identified asset.

Determine whether contract conveys the right to control the use of the identified asset to the lessee.

842-10-15-4

To determine whether a contract conveys the right to control the use of an identified asset (see paragraphs 842-10-15-17 through 15-26) for a period of time, an entity shall assess whether, throughout the period of use, the customer has both of the following:

a. The right to obtain substantially all of the economic benefits from use of the identified asset (see paragraphs 842-10-15-17 through 15-19)

The FBA1231 is dedicated to Logical Logistics, therefore, the company has the right to obtain substantially all of the economic benefits of the aircraft. (met)

b. The right to direct the use of the identified asset (see paragraphs 842-10-15-20 through 15-26).

15-20

A customer has the right to direct the use of an identified asset throughout the period of use in either of the following situations:

a. The customer has the right to direct how and for what purpose the asset is used throughout the period of use (as described in paragraphs 842-10-15-24 through 15-26).

Logical Logistics can make any decision in the vessel’s operation and decide on how and for what purpose the FBA1231 will be used. (met)

    b. The relevant decisions about how and for what purpose the asset is used are predetermined (see paragraph 842-10-15-21) and at least one of the following conditions exists:

        1. The customer has the right to operate the asset (or to direct others to operate the asset in a manner that it determines) throughout the period of use without the supplier having the right to change those operating instructions.

        2. The customer designed the asset (or specific aspects of the asset) in a way that predetermines how and for what purpose the asset will be used throughout the period of use.

Logical logistics have the right to direct the use of the plane and the right to substantially all of the economic benefits of the aircraft, therefore, the right to control the use of the asset is connived.

Determine whether of Logical Logistics’s vendor contracts contains an identified asset.

842-10-15-9

An asset typically is identified by being explicitly specified in a contract. However, an asset also can be identified by being implicitly specified at the time that the asset is made available for use by the customer.

842-10-15-10

Even if an asset is specified, a customer does not have the right to use an identified asset if the supplier has the substantive right to substitute the asset throughout the period of use. A supplier’s right to substitute an asset is substantive only if both of the following conditions exist:

a. The supplier has the practical ability to substitute alternative assets throughout the period of use (for example, the customer cannot prevent the supplier from substituting an asset, and alternative assets are readily available to the supplier or could be sourced by the supplier within a reasonable period of time).

b. The supplier would benefit economically from the exercise of its right to substitute the asset (that is, the economic benefits associated with substituting the asset are expected to exceed the costs associated with substituting the asset).

No identified asset.

Determine whether contract conveys the right to control the use of the identified asset to the lessee.

No identified asset, no right to control the use of the identified asset.

842-10-15-4

To determine whether a contract conveys the right to control the use of an identified asset (see paragraphs 842-10-15-17 through 15-26) for a period of time, an entity shall assess whether, throughout the period of use, the customer has both of the following:

c. The right to obtain substantially all of the economic benefits from use of the identified asset (see paragraphs 842-10-15-17 through 15-19)

The FBA1231 is dedicated to Logical Logistics, therefore, the company has the right to obtain substantially all of the economic benefits of the aircraft. (met)

d. The right to direct the use of the identified asset (see paragraphs 842-10-15-20 through 15-26).

15-20

A customer has the right to direct the use of an identified asset throughout the period of use in either of the following situations:

b. The customer has the right to direct how and for what purpose the asset is used throughout the period of use (as described in paragraphs 842-10-15-24 through 15-26).

Logical Logistics can make any decision in the vessel’s operation and decide on how and for what purpose the FBA1231 will be used. (met)

    b. The relevant decisions about how and for what purpose the asset is used are predetermined (see paragraph 842-10-15-21) and at least one of the following conditions exists:

        1. The customer has the right to operate the asset (or to direct others to operate the asset in a manner that it determines) throughout the period of use without the supplier having the right to change those operating instructions.

        2. The customer designed the asset (or specific aspects of the asset) in a way that predetermines how and for what purpose the asset will be used throughout the period of use.

Logical logistics have the right to direct the use of the plane and the right to substantially all of the economic benefits of the aircraft, therefore, the right to control the use of the asset is connived.

Determine whether of Logical Logistics’s vendor contracts contains an identified asset.

842-10-15-9

An asset typically is identified by being explicitly specified in a contract. However, an asset also can be identified by being implicitly specified at the time that the asset is made available for use by the customer.

842-10-15-10

Even if an asset is specified, a customer does not have the right to use an identified asset if the supplier has the substantive right to substitute the asset throughout the period of use. A supplier’s right to substitute an asset is substantive only if both of the following conditions exist:

a. The supplier has the practical ability to substitute alternative assets throughout the period of use (for example, the customer cannot prevent the supplier from substituting an asset, and alternative assets are readily available to the supplier or could be sourced by the supplier within a reasonable period of time).

b. The supplier would benefit economically from the exercise of its right to substitute the asset (that is, the economic benefits associated with substituting the asset are expected to exceed the costs associated with substituting the asset).

The Space is identified as the dedicated location in this contract. And Warehouse Co cannot substitute the Space, therefore, The Space IS the identified asset.

Determine whether contract conveys the right to control the use of the identified asset to the lessee.

842-10-15-4

To determine whether a contract conveys the right to control the use of an identified asset (see paragraphs 842-10-15-17 through 15-26) for a period of time, an entity shall assess whether, throughout the period of use, the customer has both of the following:

a. The right to obtain substantially all of the economic benefits from use of the identified asset (see paragraphs 842-10-15-17 through 15-19)

Warehouse Co CANNOT use the remaining space in the Space for other storage needs. (met)

b. The right to direct the use of the identified asset (see paragraphs 842-10-15-20 through 15-26).

15-20

A customer has the right to direct the use of an identified asset throughout the period of use in either of the following situations:

a. The customer has the right to direct how and for what purpose the asset is used throughout the period of use (as described in paragraphs 842-10-15-24 through 15-26).

Logical Logistics can decide when and how the Space is used. (met)

b. The relevant decisions about how and for what purpose the asset is used are predetermined (see paragraph 842-10-15-21) and at least one of the following conditions exists:

        1. The customer has the right to operate the asset (or to direct others to operate the asset in a manner that it determines) throughout the period of use without the supplier having the right to change those operating instructions.

        2. The customer designed the asset (or specific aspects of the asset) in a way that predetermines how and for what purpose the asset will be used throughout the period of use.

Logical Logistics has the right to all the economic benefits of the Space, and also have the right to direct the use of the Space, therefore, the right to control the use of the identified asset is conveyed

840-10-25-5

For a lessee, minimum lease payments comprise the payments that the lessee is obligated to make or can be required to make in connection with the leased property, excluding both of the following:

• a.  Contingent rentals
• b.  Any guarantee by the lessee of the lessor's debt and the lessee's obligation to pay (apart from the rental payments) executory costs such as insurance, maintenance, and taxes in connection with the leased property.

840-10-25-6     If the lease contains a bargain purchase option, only the minimum rental payments over the lease term and the payment called for by the bargain purchase option shall be included in the minimum lease payments. Otherwise, minimum lease payments include all of the following:

    a. The minimum rental payments called for by the lease over the lease term.

    b. Any guarantee by the lessee (including by a third party related to the lessee) of the residual value at the expiration of the lease term, whether or not payment of the guarantee constitutes a purchase of the leased property. If the lessor has the right to require the lessee to purchase the property at termination of the lease for a certain or determinable amount, that amount shall be considered a lessee guarantee of the residual value. If the lessee agrees to make up any deficiency below a stated amount in the lessor's realization of the residual value, the residual value guarantee to be included in the minimum lease payments shall be the stated amount, rather than an estimate of the deficiency to be made up.

    c. Any payment that the lessee must make or can be required to make upon failure to renew or extend the lease at the expiration of the lease term, whether or not the payment would constitute a purchase of the leased property. Note that the definition of lease term includes all periods, if any, for which failure to renew the lease imposes a penalty on the lessee in an amount such that renewal appears, at lease inception, to be reasonably assured. If the lease term has been extended because of that provision, the related penalty shall not be included in minimum lease payments.

    d. Payments made before the beginning of the lease term. Such payments shall be considered as part of minimum lease payments and included in the 90 percent test, as specified in paragraph 840-10-25-1(d), at their future value at the beginning of the lease term—that is, to give effect to the time value of money, the future value at the beginning of the lease term of the lease payments would be calculated just as payments during the lease term are discounted back to the beginning of the lease term for purposes of applying the 90 percent test in that paragraph. The lessee shall use the same interest rate to accrete payments to be made before the beginning of the lease term that it uses to discount lease payments to be made during the lease term.

    e. Fees that are paid by the lessee to the owners of the special-purpose entity for structuring the lease transaction. Such fees shall be included as part of minimum lease payments (but shall not be included in the fair value of the leased property) for purposes of applying the 90 percent test in paragraph 840-10-25-1(d).

842-10-30-5   

At the commencement date, the lease payments shall consist of the following payments relating to the use of the underlying asset during the lease term:

A. Fixed payments, including in substance fixed payments, less any lease incentives paid or payable to the lessee (see paragraphs 842-10-55-30 through 55-31).

B. Variable lease payments that depend on an index or a rate (such as the Consumer Price Index or a market interest rate), initially measured using the index or rate at the commencement date.

C. The exercise price of an option to purchase the underlying asset if the lessee is reasonably certain to exercise that option (assessed considering the factors in paragraph 842-10-55-26).

D. Payments for penalties for terminating the lease if the lease term (as determined in accordance with paragraph 842-10-30-1) reflects the lessee exercising an option to terminate the lease.

E. Fees paid by the lessee to the owners of a special-purpose entity for structuring the transaction. However, such fees shall not be included in the fair value of the underlying asset for purposes of applying paragraph 842-10-25-2(d).

F. For a lessee only, amounts probable of being owed by the lessee under residual value guarantees (see paragraphs 842-10-55-34 through 55-36).

None of the payments described under 842-10-30-5 fits the legal costs. Therefore, those costs are not party of the lease payment.