Rand Medical manufactures lithotripters. Lithotripsy uses shock waves instead of
ID: 2559241 • Letter: R
Question
Rand Medical manufactures lithotripters. Lithotripsy uses shock waves instead of surgery to eliminate kidney stones. Physicians’ Leasing purchased a lithotripter from Rand for $2,020,000 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.)
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 $1.7 million. Prepare appropriate entries for Rand Medical from the beginning of the lease through the second lease payment on April 1, 2018.
How should this lease be classified by Mid-South Urologists Group and by Physicians' Leasing?
.Leasee. 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). (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollars and not in the millions of dollars. Round your answers to nearest whole dollars.)
Record lease.
Record cash payment..
Record cash payment?.
Lessor. 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). (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollars and not in the millions of dollars. Round your answers to nearest whole dollars.)
Record lease.
Record cash payment..
Record cash payment?.
?Required. Assume Mid-South Urologists Group leased the lithotripter directly from the manufacturer, Rand Medical, which produced the machine at a cost of $1.7 million. Prepare appropriate entries for Rand Medical from the beginning of the lease through the second lease payment on April 1, 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollars and not in the millions of dollars. Round your answers to nearest whole dollars.).
.
Lease Description: Quarterly lease payments $ 131,821—beginning of each period Lease term 5 years (20 quarters) No residual value? no purchase option Economic life of lithotripter 5 years Implicit interest rate and lessee's incremental borrowing rate 12% Fair value of asset $ 2,020,000Explanation / Answer
ANSWER 1.
MID- SOUTH UROLOGISTS GROUP:- FINANCE LEASE
PHYSICIANS’S LEASING :- SALES TYPE LEASE
Capital lease to lessee; Direct financing lease to lessor.
Since the present value of minimum lease payments (same for both the lessor and the lessee) is greater than 90% of the fair value of the asset, the 90%recovery criterion is met.
CALCULATION OF THE PRESENT VALUE OF LEASE PAYMENT
PRESENT VALUE OF PERIODIC LEASE PAYMENT
($131821 x 15.32380** = $20,20,000) (ROUNDED)
** present value of an annuity due of $1: n=20, i=3%
**The lease term criterion is met also because the lease term is the entire estimated economic life of the assest.
ANSWER 2.
$ 20,20,000
CALCULATION:- 01/04/2018 INTEREST EXPENSE 3% OF ($20,20,000- $1,31,821)
= 3% * $1,88,8179
= $ 56,645
IN THE BOOKS OF MID- SOUTH UROLOGISTS GROUP (LESSEE) 01/01/2018 RIGHT OF USE ASSET $ 20,20,000 LEASE PAYABLE$ 20,20,000
01/01/2018 LEASE PAYABLE $ 1,31,821 CASH $ 1,31,821 01/04/2018 INTEREST EXPENSES $ 56,645 LEASE PAYABLE $ 75,176 CASH $ 1,31,821 IN THE BOOKS OF PHYSIANS' LEASING (LESSOR) 01/01/2018 LEASE RECEIVABLE $20,20,000 EQUIPMENT $20,20,000 01/01/2018 CASH $ 1,31,821 LEASE RECEIVABLE $ 1,31,821 01/04/2018 CASH $ 1,31,821 LEASE RECEIVABLE $ 75,176 INTEREST REVENUE $ 56,645 IN THE BOOKS OF RAND MEDICAL (LESSOR) 01/01/2018 LEASE RECIVABLE $ 20,20,000 COST OF GOODS SOLD $ 17,00,000 SALES REVENUE $ 20,20,000 EQUIPMENT $ 17,00,000 01/01/2018 CASH $ 1,31,821 LEASE RECEIVABLE $ 1,31,821 01/04/2018 CASH $ 1,31,821 LEASE RECEIVABLE $ 75,176 INTEREST RECEIVABLE $ 56,645Related Questions
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