Rand Medical manufactures lithotripters. Lithotripsy uses shock waves in lead of surgery to eliminate kidney stones. Physicians' Leasing purchased a lithotripter from Rand for $2,000,000 and leased it to Mid-South Urologists Group, Inc., on January 1,2016. Lease Description: Quarterly lease payments Lease term No residual value; No BPO $130,516-beginning of each period 5 years (20 quarters) The economic life of lithotripter 5 years Implicit interest rate and lessee's incremental borrowing rate 12% The fair value of asset $2,000,000 Collectability of the lease payments is reasonably assured, and there are no lessor costs yet to be incurred. Required: 1. How should this lease be classified by Mid-South Urologists Group and by Physicians' Leasing? Prepare appropriate entries for both Mid-South Urologists Group and Physicians' Leasing from the inception of the lease through the 2. second rental payment on April 1, 2016. Depreciation is recorded at the end of each fiscal year (December 31). Assume Mid-South Urologists Group leased the lithotripter directly from the manufacturer, Rand Medical, which produced the 3. machine at a cost of $1.7 million. Prepare appropriate entries for Rand Medical from the inception of the lease through the second lease payment on April 1, 2016.
Rand Medical manufactures lithotripters. Lithotripsy uses shock waves in lead of surgery to eliminate kidney stones. Physicians' Leasing purchased a lithotripter from Rand for $2,000,000 and leased it to Mid-South Urologists Group, Inc., on January 1,2016. Lease Description: Quarterly lease payments Lease term No residual value; No BPO $130,516-beginning of each period 5 years (20 quarters) The economic life of lithotripter 5 years Implicit interest rate and lessee's incremental borrowing rate 12% The fair value of asset $2,000,000 Collectability of the lease payments is reasonably assured, and there are no lessor costs yet to be incurred. Required: 1. How should this lease be classified by Mid-South Urologists Group and by Physicians' Leasing? Prepare appropriate entries for both Mid-South Urologists Group and Physicians' Leasing from the inception of the lease through the 2. second rental payment on April 1, 2016. Depreciation is recorded at the end of each fiscal year (December 31). Assume Mid-South Urologists Group leased the lithotripter directly from the manufacturer, Rand Medical, which produced the 3. machine at a cost of $1.7 million. Prepare appropriate entries for Rand Medical from the inception of the lease through the second lease payment on April 1, 2016.
Chapter1: Financial Statements And Business Decisions
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Transcribed Image Text:Rand Medical manufactures lithotripters. Lithotripsy uses shock waves in lead of surgery to eliminate kidney stones. Physicians' Leasing
purchased a lithotripter from Rand for $2,000,000 and leased it to Mid-South Urologists Group, Inc., on January 1,2016. Lease Description:
Quarterly lease payments
Lease term
No residual value; No BPO
$130,516-beginning of each period
5 years (20 quarters)
The economic life of lithotripter
5 years
Implicit interest rate and lessee's incremental borrowing rate 12%
The fair value of asset
$2,000,000
Collectability of the lease payments is reasonably assured, and there are no lessor costs yet to be incurred.
Required:
1. How should this lease be classified by Mid-South Urologists Group and by Physicians' Leasing?
Prepare appropriate entries for both Mid-South Urologists Group and Physicians' Leasing from the inception of the lease through the
2. second rental payment on April 1, 2016. Depreciation is recorded at the end of each fiscal year (December 31).
Assume Mid-South Urologists Group leased the lithotripter directly from the manufacturer, Rand Medical, which produced the
3. machine at a cost of $1.7 million. Prepare appropriate entries for Rand Medical from the inception of the lease through the second
lease payment on April 1, 2016.
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