ABC IncLeased a Jet from JKL Inc

ABC Inc.leased a jet from JKL Inc., a company that leases jet aircraft, on January 1st, Year 1.Terms of the lease are as follows: 6 annual payments of $8,000,000 to be made every January 1st, starting on January 1st, Year 1.
ABC's incremental borrowing rate is 12%.ABC Inc.has not been made aware of JKL's borrowing rate.
Both companies follow IFRS.
The jet has a fair value of $38,000,000 at the start of the lease.JKL estimates that the jet will be worthless at the end of the lease term.
There are no executory costs, however JKL, will incur $2 million in direct costs at the sta of the lease.
ABC Inc.depreciates all assets on a straight line basis.
Both companies have determined that their respective leases qualify as finance leases.
As a result of the information provided above, ABC would show total expenses of which of these following amounts for Year 2?

A) $9,084,963
B) $9,582,522
C) $10,046,510
D) $9,055,557

Correct Answer:

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