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On January 1, 20×1, Entity X (Customer) enters into a 4-year lease of equipment with Entity Y (Supplier)

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On January 1, 20×1, Entity X (Customer) enters into a 4-year lease

of equipment with Entity Y (Supplier). The annual rent is ₱220,000, 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%. Entity X uses the straight-line method of depreciation. The relevant present value factors are as follows:- PV of an ordinary annuity of ₱1 @10%, n=4………… 3.16987- PV of an ordinary annuity of ₱1 @12%, n=4………… 3.037351. How much is the lease liability to be recognized by Entity X on initial recognition?

A. 697,371

B. 668,217

C. 0

D. 702,345

 
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