Problem
You are the auditor of Big Company. After completing your audit with the exception of leases, you (and management) have determined that Big has Assets of $6,000,000 Liabilities of $2,500,000 and therefore equity of $3,500,000. Big has leased the following four pieces of land Big has a debt agreement requiring a debt/equity ratio of 1.0 or less. Land A FMV $1,000,000 PV of lease payments $900,000 Land B FMV $1,000,000 PV of lease payments $850,000 Land C FMV $1,000,000 PV of lease payments $800,000 Land D FMV $1,000,000 PV of lease payments $750,000. Under GAAP how do you classify each of these leases? Now what is the debt/equity ratio of Big? Are they violating their debt agreement? Explain.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.