**Lease Overview for Educational Analysis** **Company Context:** Rand Medical manufactures lithotripters, which employ shock waves to eliminate kidney stones without surgery. Physicians' Leasing acquired a lithotripter from Rand for $2,520,000 to lease it to Mid-South Urologists Group, Inc., starting January 1, 2021. **Lease Description:** - **Quarterly Lease Payments:** $151,093 (at the start of each period) - **Lease Term:** 5 years (totaling 20 quarters) - **No Residual Value or Purchase Option:** - **Economic Life of Lithotripter:** 5 years - **Implicit Interest Rate & Incremental Borrowing Rate:** 8% - **Fair Value of Asset:** $2,520,000 **Requirements for Analysis:** 1. **Classification:** - Analyze how Mid-South Urologists Group and Physicians' Leasing should classify this lease. 2. **Lease Entries:** - Prepare the necessary accounting entries for both Mid-South Urologists Group and Physicians' Leasing, from the start of the lease until the second rental payment on April 1, 2021. Adjustments are to be recorded at the fiscal year-end (December 31). 3. **Direct Leasing Scenario:** - Assume Mid-South Urologists Group leased directly from Rand Medical for $2.1 million. Prepare the entries for Rand Medical from the start of the lease, covering the period up to the second payment on April 1, 2021. **Instruction:** Respond to these tasks using the digital form provided in the tabs labeled "Required 1," "Required 2 Lessee," "Required 2 Lessor," and "Required 3."
**Lease Overview for Educational Analysis** **Company Context:** Rand Medical manufactures lithotripters, which employ shock waves to eliminate kidney stones without surgery. Physicians' Leasing acquired a lithotripter from Rand for $2,520,000 to lease it to Mid-South Urologists Group, Inc., starting January 1, 2021. **Lease Description:** - **Quarterly Lease Payments:** $151,093 (at the start of each period) - **Lease Term:** 5 years (totaling 20 quarters) - **No Residual Value or Purchase Option:** - **Economic Life of Lithotripter:** 5 years - **Implicit Interest Rate & Incremental Borrowing Rate:** 8% - **Fair Value of Asset:** $2,520,000 **Requirements for Analysis:** 1. **Classification:** - Analyze how Mid-South Urologists Group and Physicians' Leasing should classify this lease. 2. **Lease Entries:** - Prepare the necessary accounting entries for both Mid-South Urologists Group and Physicians' Leasing, from the start of the lease until the second rental payment on April 1, 2021. Adjustments are to be recorded at the fiscal year-end (December 31). 3. **Direct Leasing Scenario:** - Assume Mid-South Urologists Group leased directly from Rand Medical for $2.1 million. Prepare the entries for Rand Medical from the start of the lease, covering the period up to the second payment on April 1, 2021. **Instruction:** Respond to these tasks using the digital form provided in the tabs labeled "Required 1," "Required 2 Lessee," "Required 2 Lessor," and "Required 3."
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:**Lease Overview for Educational Analysis**
**Company Context:**
Rand Medical manufactures lithotripters, which employ shock waves to eliminate kidney stones without surgery. Physicians' Leasing acquired a lithotripter from Rand for $2,520,000 to lease it to Mid-South Urologists Group, Inc., starting January 1, 2021.
**Lease Description:**
- **Quarterly Lease Payments:** $151,093 (at the start of each period)
- **Lease Term:** 5 years (totaling 20 quarters)
- **No Residual Value or Purchase Option:**
- **Economic Life of Lithotripter:** 5 years
- **Implicit Interest Rate & Incremental Borrowing Rate:** 8%
- **Fair Value of Asset:** $2,520,000
**Requirements for Analysis:**
1. **Classification:**
- Analyze how Mid-South Urologists Group and Physicians' Leasing should classify this lease.
2. **Lease Entries:**
- Prepare the necessary accounting entries for both Mid-South Urologists Group and Physicians' Leasing, from the start of the lease until the second rental payment on April 1, 2021. Adjustments are to be recorded at the fiscal year-end (December 31).
3. **Direct Leasing Scenario:**
- Assume Mid-South Urologists Group leased directly from Rand Medical for $2.1 million. Prepare the entries for Rand Medical from the start of the lease, covering the period up to the second payment on April 1, 2021.
**Instruction:**
Respond to these tasks using the digital form provided in the tabs labeled "Required 1," "Required 2 Lessee," "Required 2 Lessor," and "Required 3."
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