Auto Inc. (Auto) is a company based in New York thatmanufactures automobiles and exports the finished vehicles toEurope. Auto manufactures two models; the most popular model is afour-door sedan (Sedan), and the other is a less common, highlycustomizable luxury sports car (Luxury Car). Auto contractsTrans-Atlantic Inc. (Atlantic) to ship its products to Europe.Atlantic has a fleet of 10 multi-use shipping vessels, each withcapacity for 2,000 vehicles. The terms of the shipping contractsare as follows: • Sedan contract terms: o The term is five years. oMV Manhattan, a ship in Atlantic’s fleet, is dedicated to shippingAuto’s Sedans for the term of the contract. o Auto determines (1)which European ports receive shipments and (2) the order in whichdeliveries are made to the ports; Auto instructs Atlanticaccordingly. o Auto has the option to send the ship below capacity.If the ship is below capacity, Atlantic cannot use the excesscapacity to ship products of its other customers. • Luxury Carcontract terms: o The term is five years. o Atlantic is required todeliver shipments of Luxury Cars within five weeks of notificationfrom Auto that an order of Luxury Cars is ready for shipping. oAtlantic may choose any ship from its fleet to complete therequest. o Auto may provide 250 to 2,000 Luxury Cars in a singlerequest; however, shipping requests of Luxury Car generally do notexceed 500 vehicles in a single request because of the lowerproduction volume and longer manufacturing time of Luxury Car. oAtlantic has the option to use excess capacity to ship products ofits other customers. o After notification from Auto that LuxuryCars are ready to ship, Atlantic determines when within thefive-week period to ship the cars, as well as the shipping route.Auto’s CFO understands that the new leasing standard has certainprovisions that may affect how the company treats contracts of thisnature. Required: Analyze the above and prepare a memorandumaddressing the impact (if any) of the new leasing standard onAuto’s shipping arrangements for the following considerations: Case17-1: You Tell Me: Am I a Lease? Page 2 Copyright 2017 DeloitteDevelopment LLC All Rights Reserved. 1. Determine whether each ofAuto’s contracts with Atlantic for Sedan and Luxury Car contains anidentified asset. 2. Determine whether each contract conveys theright to control the use of the identified asset to the lessee.