On December 31, 20x0 an entity sells one of its asset to a leasing company and immediately leases it back.

Fair value of asset $1,200,000

Asset's original cost $3,000,000

Accumulated depreciation 2,200,000

Lease term 15 years

Economic (and useful) life of asset 15 years

Residual value 0

Interest rate implicit in the lease (known to the lessee) 5%

Lessee's incremental borrowing rate 5%

At the end of the lease term, the asset's ownership reverts back to the lessee. The first lease payment of $110,105 is due on December 31, 20x0.

Required - For each of the following, prepare the journal entries relative to this lease transaction at December 31, 20x0 and December 31, 20x1.

(a) The lessee is subject to IFRS

(b) The lessee is subject to ASPE.