FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Rand Medical manufactures lithotripters. Lithotripsy uses shock waves instead of surgery to eliminate kidney stones. Physicians’ Leasing purchased a lithotripter from Rand for $2,050,000 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 | $ | 122,913—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 | 8% | ||
| Fair value of asset | $ | 2,050,000 | |
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.
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.
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