Reference no: EM132756907

On January 1, 20x1, Co. X enters into a three (3) year lease of equipment for an annual rent of P100,000 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%. Co. X uses the straight-line method of depreciation.

The relevant present value factors are as follows;

PV of ordinary annuity of P1 at 10%, n=3 ......................... 2.48685

PV of ordinary annuity of P1 at 12%, n=3 ......................... 2.40183

Problem 1: How much is the lease liability to be recognized by Co. X on initial recognition?

a) 240,183 c) 252,314

b) 248,685 d) 0