FASB Codification Case #5

Lease Classification

Facts

Starbucks, a coffee company, entered into a contract with DFW Airport to lease space near

boarding areas for a sales kiosk. The contract is for a three-year period and will permit Starbucks

to sell its coffee and food products to airport travelers. The contract specifies that Starbucks will

be allocated 400 square feet of prime space for its kiosk near active boarding areas. The space

will be selected by DFW Airport and the airport has the right to change the location of the space

during the period of use. Starbucks has no objection to a change in the kiosk location due to the

fact that any location selected by the airport must be near active boarding areas and the cost of

moving the kiosk is minimal. At present, there are many areas in the airport that are available

and that would meet the specifications for the space in the contract.

Question

Does this lease contract qualify as a long-term lease for accounting purposes?

Required

1. Provide a brief discussion regarding the proper classification of this lease contract for

accounting purposes.

2. Identify the specific paragraph of the FASB Codification which addresses this issue and

submit a printout of this paragraph with your solution.

Grade Value

This case counts as a bonus question (maximum 2 percentage points) for examination #3.

You must work independently on this case (this is not a group project).