Question

Rand Medical manufactures lithotripters. Lithotripsy uses shock waves instead of surgery to eliminate kidney stones. Physicians' Leasing purchased a lithotripter from Rand for $2,260,000 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.) $ 135,504-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 $2,260,000 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 $1.9 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 How should this lease be classified by Mid-South Urologists Group and by Physicians' Leasing? Mid-South Urologists Group Physicians' Leasing Required 1 Required 2 Lessee >

Answer 1

HO L Answert O present value of periodic lease payments -pl Annual interest - 8%. Quarterly interest = 394 = 2% $125.504 [i-C172759) 1723) 27 =$135504 x 16.67846 :: present value of periodie lease payment = $2,259998 (batel $2,260000 Mid South urologists group Financial lease - Lessee physicians Leasing sales type lease - Lessor | 2) Journal entries.- Hid South urdogists (Lessce) particulars - LF Debit credit 2021 / Right of use Asset Ale or Jany or l $2,260,000 To Lease payable I Lease payable Ale $135504 To Cash $135504 Aps-1/ Interest- expense Ale $42,490 [$2,259998-$135,504)*97. Lease payable Al or *93,014 T hey = $42,490] $135,504 Do !

physician's Leasing (lesso 2021 Lease receivable Ale Dr $2,260,000 Jan-il $2,260.000 TO Equipment Cash Ale Do $135,504 To Lease receivable $135,504 Apr-1 cash Al Dy $135.504 TO Lease receivable is 93,014 TO Interest Revenue $ 42,490 |3) Journal entries for Rand Medical (Lessor) Toate particulars THE Debit credit 2011 Lease Receivable Ale $2,259998 aul Cost of goods sold Ale $1900000 To sales revenue $2,259998 To Equipment $1900,000 $ 135,504 $135504 Cash ale To Lease Receivable Apr-1 cash ale To Lease Receivable To Interest Revenue px $135,504 1$ 93,014 $ 42,490