Allies Apple Orchard (AAO) is a privately owned company that specializes in pick-your own apples, strawberries and raspberries. The Farm is dedicated to modern, environmentally friendly growing practices. They are located in Port Perry, Ontario. AAO incorporated 15 years ago by the Pierce family. The company has a December 31 year-end. In a recent meeting with the owner, Allison Pierce, she indicated that the family has been provided an opportunity to purchase an additional 100 acres of land at a farm a few miles away. The additional land will allow AAO to expand their operations and grow additional varieties of apple trees. AAO has approached the bank for additional financing. The bank has requested that AAO provide GAAP compliant financial statements. The Pierce family does not really know much about GAAP, and what their options are, and has asked that you provide some context. The bank has stated that in order to qualify for the loan, AAO must maintain a total debt to equity ratio that does not exceed 2:1. The draft financial statement projected that debt was $560,000, and equity was $428,000. It is now January 15, 2020 and you have been hired to assist AAO with the finalization of their year-end GAAP compliant financial statements. In your meeting with Allison, the following issues were identified:

- In 2019, AAO made a series of updates to their signs around the farm. This included re-painting and touching up some of the signs that were starting to fade and look dull. The total cost of the repainting was $15,000, including the employee wages and materials. AAO generally re-paints 1- 2 years. AAO also purchased 3 new large billboard type signs to better help draw in customers off the highway, and to help customers navigate between the various crops. The total cost of the 3 new signs were $80,000. The total $95,000 has been capitalized.

- In October, AAO had a few leaks and had to have an emergency replacement of the shingles on the barns roof. They paid $125,000 for the repairs and expensed it during the year.

- Finally, in September 2019, an ex-employee sued AAO in the amount of $80,000 for wrongful dismissal. Correspondence between the AAO legal team and the plaintiffs counsel indicated that a settlement of $35,000 was accepted by the employee in late December. AAO has not yet paid this amount.

- AAO accounts for its capital assets on an historical cost basis. They have not recorded depreciation on a few specific pieces of equipment. The assets in question include: Land costing $1.5 million, and 5 tractors costing $250,000 each. The Pierces have always felt that depreciation does not represent the true economic value of the equipment, and skews the overall income. The estimated useful life of the tractors is about 15 years.

Prepare your report to Allison Pierce that addresses the contentious accounting issues.

Provide support for your recommendations.