Fusters Inc. provides audited financial statements to its creditors and is required to maintain certain covenants based on its debt to equity ratio.

New legislation was discussed by the government that would require new pollution control technology for companies such as Fusters. Prior to this, Fusters had been complying with all current requirements and otherwise believed that it was acting in an environmentally responsible manner. In anticipation of this legislation being passed next year, Fusters expects it will need to upgrade its equipment and has booked the following entry:

Equipment 121,000

Debt 121,000

INSTRUCTIONS

1. Who are the users of Fusters' financial statements and what are their financial reporting needs.
2. Assuming the company follows ASPE, provide a GAAP supported-case specific analysis for this scenario
3. What is your recommendation? Explain the impact on your recommendation to the users of these financial statements.