Peridis Inc. has entered into a contract with an asset-based finance company to lease some equipment commencing January 1, 20X1. The lease payments are $20,000 per year for 8 years, with payments commencing at the start of each lease year. At the end of the lease, Peridis guarantees to either (1) acquire the equipment from the lessor for $10,000 or (2) pay for the lessor’s cost of removing the equipment, which also is estimated at $10,000. Peridis’s incremental borrowing rate for this amount and term is estimated to be 8% and the lessor’s implicit rate is unknown. Peridis’s fiscal year ends on 31 December.

Required:
1. Determine the present value of the lease payments.
2. Prepare a liability amortization table for this lease for Peridis.
3. How much interest expense will Peridis report for each of 20X1 and 20X2?
4. Assume instead that the lease starts on 1 October 20X1. How much interest should the company record for each of 20X1 and 20X2?