VidEqp Company, Inc., [VEI] manufactures equipment for use by studios producing movies. It leased a studio crane to Glamour Studios, Inc., [GSI] on January 1, 2016 on a 10-year lease. VEI reports under ASPE while GSI reports under IFRS. Both companies use the straight line method of amortization and December 31 as their year end. It was agreed that annual lease instalments of $99,000 would be charged at the beginning of the year.

The crane had a fair market value of $780,000 with a 15-year life. It was agreed that the crane would be returned unconditionally at the end of the lease term. The lessor estimated its value at the end of the lease to be $135,000 and the lessee offered no guarantee for its market value on the return date. The interest rate implicit in the lease was 7%. However since the lessor refused to disclose this information, the lessee used its incremental rate of 8% which was being charged by its bankers.

USE THE INFORMATION GIVEN ABOVE TO ANSWER QUESTIONS 23 - 29.

REQUIRED: Select the alphabet of the one best answer to each of the questions listed below and input it in the computer. The journal entry prepared by GSI to record the lease instalment on January 1, 2017 would be

Select one:

a.

DR Obligation Under Capital Lease, $99,000; CR Cash, $99,000

b.

DR Interest Payable, $62,398; DR Obligation Under Capital Lease, $36,602;

CR Cash, $99,000

c.

DR Interest Expense, $99,000; CR Cash, $99,000

d.

DR Interest Payable, $49,475; DR Obligation Under Capital Lease, $49,525;

CR Cash, $99,000

e.

No journal entry required as there was no other transaction on January 1, 2017