1. Should Trans-Share account for the sale of the fractional interest in the airplane according to ARC 840 (Accounting for Leases) or ARC 606 (Revenue Recognition for Customer Contracts)? Provide citation and explain in your own words.
Based off the Codification, Trans-Share should account for the sale according to ARC 606. Citing 840-10-1, a criteria for lease classification is derive from the transfer of all substantial benefits and risks incidental to the ownership of that property. What this means is that unless the buyer (lessee) assume all significant risks and rewards, the criteria for a leash has not been met. In addition to that 840-15-6, state arrangements that qualify as leases. Under these arrangements, it is hard to consider (but not impossible) the sale of the fractional interest as a lease. 15-6 revolve around the concept of the “right to control”. What can the lessee do to the aforementioned property, do they have to follow guidelines, and is there anyone else who might have more than a minor output on the property? In the Trans-Share case, Trans-Share control and maintain virtually all aspects of the plane, with the buyer only dictating flight hours when available. In addition to that the purchaser lack any significant input on Trans-Share’s policy and cannot in any way deviate from them. The last part of 15-6 deal with whether or not other parties excluding the purchaser (the 7 other buyers as well as Trans-Share customer) will take more than a minor output of the property (flight hours).