Big bear power is a public utility company that has posted strong financial results for several years. Big Bear has positive cash flow, and it is in...

Big bear power is a public utility company that has posted strong financial results for several years. Big Bear has positive cash flow, and it is in compliance with all its debt covenants. Big Bear leases a combustion turbine from Goliath for 10 yrs. noncancelable term. The lease agreement is sign on 12/15/2010. and Big Bear's right to use the turbine begins on January 1,2011. 1.Big Bear pays external legal counsel, 500k in connecton with negotiationg the lease agreement. Big Bear is required to pay $1million of legal fees incurred by Goliath.2. The stated default provisions in the lease include a provision that requires a penalty payment if Big Bear's bank declares a default under its promary credit arrangement. Big Bear will be in default under the credit arrangement if there is a "material adverse change" in its financial condition. Material adverse change is not defined in the loan documents. Big Bear believes the likelihood of default is remote. The bank has no relationships with Goliath (This is a customeary provision in leasing arrangements)3. The lease agreement stipulates that Big Bear's lease payments shall be $1 million per year, payble ratably over 12 months at the beginning of each month. For each calendar year of the term of the lease after 2011, Big Bear will pay minimum rent in a maount equal to $1 million increased(but not decreased) by the same percentage as the increase in the consumer price(CPI) from January 1 of piro year until January 1 of each respective year. As of the inception of the lease , the most recent annual increase in CPI was 4%Quation are:1. What is the proper treatment of leases under currecnt U.S.GAAP?2. Should the costs or potential costs associated with the provision be included in "Minimum lease payments" as difined in ASC 840 Leases.