A. Wasn't.. This is because if you seperatevthe contractioninto two words it is was not, this would make the sentence be "Wally was not capable of lifting the heavy box." If you were to do the same thing with weren't it would sound like "wally were not capable of lifting the heavy box." This does not make sense because "wally" is singular (so is "was not") and "were not" is pleural.
