On January 1, 2017, Dionne Ltd. signs a 10-year non-cancellable lease agreement to lease a storage building from Seline Inc. Seline is in the business of leasing/selling property. Collectibility of the lease payments is reasonably assured and no additional costs are to be incurred by the lessor (other than executory costs). Both the lessor and the lessee are private corporations adhering to ASPE. The following information is available regarding this lease agreement:

1. The agreement requires equal payments at the end of each year.

2. At January 1, 2017, the fair value of the building is $900,000 and Selines book value is $750,000.

3. The building has an estimated economic life of 10 years, with no residual value. Dionne uses straight-line depreciation for all its depreciable assets.

4. At the termination of the lease, title to the building will transfer to the lessee.

5. Dionne's incremental borrowing rate is 11%. Seline Inc. set the annual rental to ensure a

10% rate of return. The lessors implicit rate is known to Dionne.

6. The yearly lease payment includes $3,000 executory costs related to taxes on the property.

Rounded to the nearest dollar, how much depreciation expense would Dionne record on this asset for calendar 2017?

a) $0

b) $75,000

c) $90,000

d) $146,471

14. On July 1, 2017, Justin Ltd., a dealer in machinery and equipment, leased equipment to Trudeau Inc. The lease is for ten years, and at the end of the lease period, title will pass to Trudeau. Justin requires ten equal annual payments of $62,100 on July 1 of each year, and Trudeau made the first payment on July 1, 2017. Justin had purchased the equipment for $390,000 on January 1, 2017, and established a selling price of $500,000 (which was fair value at July 1, 2017). Assume that, at July 1, 2017, the present value of the rent payments over the lease term discounted at 8% (the appropriate interest rate) was $450,000. The useful life of the equipment is 12 years.

For the year ended December 31, 2017, and assuming that Trudeau uses straight-line depreciation, how much depreciation and interest expense should Trudeau record?

a) $18,750 and $15,516

b) $18,750 and $24,840

c) $22,500 and $15,516

d) $22,500 and $24,840