On March 31, 20x1, TRUST CO. (customer)enters into a 4 -year lease of equipment with FAITH CO. ( Supplier). The annual rent is P220,000, payable at the end of each year . The equipment has a remaining useful life of 10 years. The interest rate implicit in the lease is 10% while the lessee's incremental borrowing rate is 12%. The relevant value factors are as follows: PV of an ordinary annuity of P1@10%, n=4 ...... 3.16987 PV of an ordinary annuity of P1@12%, n=4 ....... 3.03735 How much is the lease liability to be recognized by TRUST CO. on initial recognition?

a. P880,000

b. P697,371

c. P523,029

d. P702,345

2. Assume that the lease in No. 2 is a A)finance lease. How much is the net investment in the lease to be recognized by FAITH CO. on initial recognition? B) Assume that the lease is an operating lease . How much is the lease ( rent) income in 20x2?

a. P697,371; P220,000

b. P697,371; P165,000

c. P523,029; P220,000

d. P523,029; P165,000