Question

Problem 15-4 (Algo) Finance/sales-type lease; lessee and lessor (LO15-1, 15-2, 15-3] Rand Medical manufactures lithotripters. Lithotripsy uses shock waves instead of surgery to eliminate kidney stones. Physicians' Leasing purchased a lithotripter from Rand for $2,260,000 and leased it to Mid-South Urologists Group, Inc., on January 1, 2021. (FV $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 $135,504-beginning of each period Lease term 5 years (20 quarters) No residual value; no purchase option Economic life of lithotripter Implicit interest rate and lessee's incremental borrowing 8% rate Fair value of asset $2,260,000 5 years 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 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 $1.9 million. Prepare appropriate entries for Rand Medical from the beginning of the lease through the second lease payment on April 1, 2021. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Lessee Required 2 Lessor Required 3 Assume Mid-South Urologists Group leased the lithotripter directly from the manufacturer, Rand Medical, which produced the machine at a cost of $1.9 million. Prepare appropriate entries for Rand Medical from the beginning of the lease through the second lease payment on April 1, 2021. (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.) Show less

Answer 1

2-473") x (1+r)] Group (1) Mid-South urologists Group - Finance Lease physician's Leasing - sales type Lease Capital Lease to lease, Direct financing Lease to leave The present value of minimum Lease payments is gnater than 90% of the fair value of the asset, the 90% recovery criterion is met Present valul =p r na 20, 1-27 = $135,504 x 16.6785 Present value = $2,260,003 Mid-South urologisty: Puthe book of Mid-south urologisty Jau-l Lessee Right of use Asset $2,260,000 -2021 $2,260,000 Jan-1 $135,504 Apr-1-2011 Cash , $135,504 2,260.000-135,504) x 27.) $93,014 cash $135,504 en horory of physician Ceasing Lessora Jan-1- Lease Receivable $2,260,007 Equipme $2,260,000 Jan-1- I cash $135.504 2021 Lease Receivable $135,504 Apr-1 T$135,504 Cash -2021 Lease Receivable $93,014 Puterest Revenles 4421490 lease payable . Lease payable -2021 $42,490 Interest Expenses Lease payable 2021

-20211 In the books of Round Medical Cessor) Jam to Lease Receivable Cost of goodly sold Sales revenue Equipment Debit credit $2,260,000 $ 1900000 $2,260,000 $1,900,000 Jow-!- cash $135,504 2021 Lease Receivable $ 135504 $135,5014 Apr-1-2021 cash Lease Receivable . Luliret Receivable $93,014 1$42490
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