Pepper, Inc -If the Equipment Is Worth $7,500 at the End of for 10

Pepper, Inc. agrees to lease equipment from the Blue Corporation for 10 years at $25,000 at the end of each year. The equipment has a fair value of $175,000 and an estimated useful life of 10 years. The lease includes a guaranteed residual value of $10,000. In addition to the lease payments, Pepper will pay $5,000 per year for a maintenance agreement. Pepper can finance this lease with its bank at a 12% rate. The lessor's implicit lease rate, known to the lessee, is 10%.
Present value interest factors are:
$$\begin{array} { l c c } & \underline { \mathbf { 1 0 \% } } & \underline { \mathbf { 1 2 \% } } \\\text { PVIF \$1 } 10 \text { periods } & 0.38554 & 0.32197 \\\text { PVIF Annuity } 10 \text { periods } & 6.14457 & 5.65022\end{array}$$
-If the equipment is worth $7,500 at the end of the lease,Pepper will make which one of the following journal entries?

A) DR Obligation under capital lease $~~~~~~~~$$~~~~~~~~$ 7,500
$~~~~~~~~$ CR Leased equipment-Capital lease $~~~~~~~~$$~~~~~~~~$ 7,500
B) DR Obligation under capital lease $~~~~~~~~$$~~~~~~~~$ 12,500
$~~~~~~~~$ CR Leased equipment-Capital lease $~~~~~~~~~~$$~~~~~~~~$ 10,000
$~~~~~~~~$ CR Cash $~~~~~~~~$$~~~~~~~~$$~~~~~~~~~~~~$$~~~~~~~~$$~~~~~~~~~~$$~~~~~~~~~$ 2,500
C) DR Obligation under capital lease $~~~~~~~~$$~~~~~~~~$$~~~~~~~~$ 10,000
DR Loss on residual value guarantee $~~~~~~~~$$~~~~~~~~~~~~~~$ 2,500
$~~~~~~~~$ CR Leased equipment - Capital lease $~~~~~~~~$$~~~~~~~~$$~~~~~~~~$ 10,000
$~~~~~~~~$ CR Cash $~~~~~~~~$$~~~~~~~~$$~~~~~~~~$$~~~~~~~~$$~~~~~~~~$$~~~~~~~~$$~~~~~~~$$~~~~~~~~$ 2,500
D) No entry requireD.