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What is the interest expense for harith company

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On January 2, 2019, Harith Company entered into a five-year lease requiring payments of P220,000 each lease year at the beginning of each year. The periodic payments include P20,000 in periodic repairs and maintenance to be done by the lessor. Harith Company's incremental borrowing rate is 12%, while the lessor's implicit interest rate, known to Harith Company, is 10%. The estimated residual value of the asset after five-year lease term is at P40,000 while after its 10 year useful life is at P20,000.

Problem 1: Assuming that Harith Company guaranteed the residual value of the asset, what is the interest expense in 2019?

a. 65,881

b. 85,881

c. 98,312

d. 70,812

Reference no: EM132744981

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