Rand Medical manufactures lithotripters. Lithotripsy uses shock waves instead of

Question

Rand Medical manufactures lithotripters. Lithotripsy uses shock waves instead of surgery to eliminate kidney stones. Physicians Leasing purchased a lithotripter from Rand for $2,590,000 and leased it to Mid-South Urologists Group, Inc., on January 1, 2018. (FV of $1. PV of $1 FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) $183,247-beginning of each period Lease term No residual value; no purchas option Economic life of lithotripter Implicit interest rate and lessee's ineremental borrowing 5 years (20 quarters) rate $2,590,000 Required: 1. How should this lease be classified by Mid-South Urologists Group and by Physicians' Leasing? 2. Prepare appropriate entries for both Mid-South Urologists Group and Physicians' Leasing from the beginning of the lease through the second rental payment on April 1, 2018. Adjusting entries are recorded at the end of each fiscal year (December 31). 3. Assume Mid-South Urologists Group leased the lithotripter directly from the manufacturer, Rand Medical, which produced the machine at a cost of $2.2 million. Prepare appropriate entries for Rand Medical from the beginning of the lease through the second lease payment on April 1, 2018. Complete this question by entering your answers in the tabs below. Required 2 Required 2 2

Explanation / Answer

Since (a) fair value of the lease payment is equla to the cost of the machine ,

(b) the term of the lease is equal to the economic life of the asset

the lease is accoued as a capital lease.

Present value of the lease rental is caluclated as shown below.

2.

3.

Mid-South Urolgists Group Capital Lease Physician's Leasing Direct financing lease

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