Question

Rand Medical manufactures lithotripters. Lithotripsy uses shock waves instead of surgery to eliminate kidney stones. Physicians' Leasing purchased a lithotripter from Rand for $2,470,000 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.) $148,095-beginning of each period 5 years (20 quarters) Lease Description: Quarterly lease payments Lease term No residual value; no purchase option Economic life of lithotripter Implicit interest rate and lessee's incremental borrowing rate Fair value of asset 5 years 8% $2,470,000 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 $2.1 million. Prepare appropriate entries for Rand Medical from the beginning of the lease through the second lease payment on April 1, 2021.

Answer 1

Answord 0 Finance lease to leases; sabes - type dease to lessos. frescat walue of lease payments : present wohne di lease payments = $148,095 x 1-CI+ 2% xftat) -20 =148,095 X 16.67846901. $2469997 m-s urologists. Groups credet($) Date I Account Title 304?_ right of we asset.com Tani | Lleose pagable • Debit C$) $2,470,000 1.2.470.00 to record the lease payment Entry is Account Title undit (F) Date dad. Lease Day able Jani I Cash (lease payment) Debild $148,095 $148,095

credit 2011 I Account Title Debit (t) nterest Expence Ca), x {$46.9997148095) $46438 $101,657 April1 payable lease . cach $148,095 Pls leasing (tegrond - Account Title Dekit (2) Lancdide2 8031. Jan Lease McCainall.c $2,430000 42,470.000 Equipment cash $1482095 lease. Alcoin.cabelo $144,095. pala, se cash $ 148,095 lease c. csivaibhe. $101,657 interest zzvenil 21.%[8469997-148095) $46438 3) Rm(ressor : prepare appropriatle Entries for Rand medical from the beginning of the lease through the second lease payments con April 1, 2021.9.

Dita I Debit c6 I aldia 52469991 ---- $2,100,000 $2469997 $2,100,000 - Account Title tease receivable cost of goods sold sales revenue -Esquipment cash leas receivable coch lease receivable interest revenue $ 148,095 $148,095 Apr 1, 2001 $148095 $ 101,657 $46439