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Problem 15-4 (Algo) Finance/sales-type lease; lessee and lessor (LO15-1, 15-2, 15-3] 5 Rand Medical manufactures lithotripter

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Answer #1
Implicit Interest rate = 12% pa
Implicit Interest rate per Qtr =3%
There will be 20 Qtrly lease payments
out of which the first one will be on the first day of
lease. So 19 payments to be discounted @3% qtrly rate
PVIF factor @3% for 19 periods=(1-1.03^-19)/3%=               14.3239
Finidng PV of Min Lease Payments
DeatislParticulars Cash flow PV/PVIF Fcator PV of Cash flow
First Lease payment $               114,201                      1.00 $                  114,201
Lease paymnet Q2 to 20 $               114,201               14.3239 $               1,635,799
Total : $               1,750,000
So PV of Min Lease payments = $            1,750,000
Fair Value of Equipment $            1,750,000
Ans 1.
So Min value of lease payments is equal to the fair value of the asset.
The Lease period covers 100% of asset's useful life.
So the lease will be treated as Financial Lease between Lessor Physician's Leasing and Lessee
Mid-South Urlogist's Group.
Ans 2.
Journal Entry in the book of Physician's Leasing (Lessor)
Date Account Title Dr $ Cr $
Jan 1.2021. Equipment $            1,750,000
Cash $        1,750,000
Lease Receivable $            1,750,000
Equipment $        1,750,000
Cash $               114,201
Lease Receivable $           114,201
Apr 1.2021. Cash $               114,201
Lease Receivable $        65,127.03
Interest Income $        49,073.97
Journal Entry in the book of Mid-South Urlogist's Groupg (Lessee)
Date Account Title Dr $ Cr $
Jan 1.2021. Right-to-Use Asset $            1,750,000
Lease Payable $        1,750,000
Lease Payable $               114,201
Cash $           114,201
Apr 1.2021. Lease Payable $            65,127.03
Interest Expense $            49,073.97
Cash $      114,201.00
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