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...

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