During the 2020 fiscal year, Lay Inc., a regional telecom company, incurred $2,000,000 of network sharing costs with its competitor, Watkins Ltd. These costs enabled calls to be made by Lay customers to Watkins customers during the 2020 year. At the direction of the CEO, Lay’s accountant capitalized all of these costs in 2020 as Right to Use Telecom Lines. The amortization period was set at 10 years.

Required:

a. What is the financial accounting issue? State as an issue statement/question as done in class.

b. What are the implications/impact of the issue to the 2020 financial statements?

c. What is your recommendation for the financial accounting issue?

d. Why did you recommend this?

Support your answer using GAAP conceptual framework principles and APPLYING them to the Lay Inc. situation.