Question

Rand Medical manufactures lithotripters. Lithotripsy uses shock waves instead of surgery to eliminate kidney stones. Physicians' Leasing purchased a lithotripter from Rand for $2,000,000 and leased it to Mid-South Urologists Group, Inc., on January 1, 2021. (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.)

Lease Description:
Quarterly lease payments	$	130,516—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	$	2,000,000

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, 2021. 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, 2021.

Answer 1

Answer Page, no 0 ♡ Finance lease to lesses and the sales -- type lease fo Lesso 91. Mid south urologists group | 1. Physician's leasing | Finance lease Sales tupe lease Present value of periodic lease payments = $130516 XpVar (3), 20) = 130516 2 store og . = 130516 X 15.32379911 : = $ 2,000,000 Datic 2021 Mid - South varalegiats que op (lexsce) Tammal entries :- Perticular Debit . Credit Jan! Right of use asset. $ 2000,000 - lease payable - $ 2000,000 (To record the lease payment) Lease payable $ 130516 I Cash (lease payment) $130516 fra record the lease paymen) Tani, 2021

Page No ③ l Credit Date Particular Interest expense Lease payable Cash Clease payment) cho record the lease payment) Debit . $ 56085 $74431 Aprill 2021 $130516 Dabe Taterest expense = (2000,000 - 130516) *3% = 1869484 X3% = $5608450 56085 lease payable = 130516 – 56085 = $44431 Physician's leasing (lesson Journal entries :- Particular Debit Credit Lease oreccivable $2000,000 Jan ! Equipment (lessor's cort) $2000,000 Lto record the equipment) Cash (lease payment) Lease receivable $130516 (To record the dease payment) April 1) cash (lease payments) 2001 Lease Jeceivable $7443) Interest revenue (To record the lease payment) 2021 Jan', 2021 6 $.56085

Interest w Page. No ③ revenue - (2000000 - 130516) *34.' = $ 56085 Lease Oreceivable = 130516 – 56085 = $ 444 31 . Particular Gedit * Appropriate entries for Rand Medical Clexagon Date Debit Jan 1, Lease oreceivable... $2000,000 corot of goods sold (ressor's cont) $1400,000 Sales revenue Equipment (lessor's cook) Cash (lease payment) $130516 Lease sieceivable $2000,000 $1700,000 Jan', 2021 $130516 Aprill, 1. 2001 $130516 Cash ( bease payments) Lease oreceivable Interest revenue $7443) $ 56085 Interest revenue = (2000,000 – 130516) X3%. = $ 56085 Lease creceivable = 130516 - 56085 < $ 74431*