On January 1, 2015, Cape Cod Corporation signed a five-year noncancelable lease for equipment. The terms of the lease called for Cape Cod to make annual payments of $150,000 at the beginning of each year for five years with the title passing to Cape Cod at the end of this period.

The equipment has an estimated useful life of 7 years and no salvage value. Cape Cod uses the straight-line method of depreciation for all of its fixed assets. Cape Cod appropriately accounts for this lease transaction as a capital lease.

The minimum lease payments were determined to have a present value of $625,479 at an effective interest rate of 10%. In 2016, Cape Cod should record interest expense of:

a. $32,547

b. $37,303

c. $47,548

d. $52,302.