Do you agree with Crimson’s conclusion that the lease term
Do you agree with Crimson’s conclusion that the lease term for the cargo vessel is one year because the revenue contract is for one year? What factors should Crimson
Do you agree with Crimson’s conclusion that the lease term
ACCT 352 Research Case – Spring 2021
Crimson Tide Shipping (“Crimson”) provides domestic and international transportation and logistics services to customers.
The company contracts shipping vessels, trucks, and aircraft toprovide regional, long-haul, and international shipments of customer goods.
Crimson has entered into the following contracts:
In March 2019, Crimson entered into a revenue contract with a customer, Matador
Manufacturing (“Matador”), in which Crimson would be the exclusive shipper of Matador’s products between Shanghai and Los Angeles.
Crimson’s contract with Matador is effective on July 1, 2019.
Required:
1. Do you agree with Crimson’s conclusion that the lease term for the cargo vessel is one year because the revenue contract is for one year?
2. What factors should Crimson consider in supporting its conclusion related to the lease term?
Additional Facts
On December 1, 2019, Crimson entered into a shipping contract with Redhawks Manufacturing Company (“Redhawks”) to ship Redhawks’ products between Shanghai and Los Angeles.
The contract with Redhawks commences on January 1, 2020, and on the basis of Crimson’s evaluation of its enforceable rights and obligations in the contract with Redhawks, Crimson concludes that term of the revenue contract with Redhawks is for a period of two years.
Further, Crimson concludes that (1) because of its contract with Matador and Redhawks, it would not be operationally feasible to deploy the leased cargo vessel on other routes;
(2) the cargo have sufficient capacity to service both Matador and Redhawks; and (3) the leased asset is needed for Crimson to perform under its revenue contract with Redhawks (because of economic reasons that would not allow Crimson to use another vessel).
Required:
3. Should Crimson reassess the lease term of the cargo vessel? If so, why?
Analyze the above and prepare a 2-page report (font 12 of Times New Roman;
short answers with bullet points are encouraged) addressing the three questions.