Rand Medical manufactures lithotripters. Lithotripsy uses shock waves instead 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, Incorporated, on January 1, 2024. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) 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 $ 130,516-beginning of each period 5 years (20 quarters) 5 years 12% $ 2,000,000 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, 2024. 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 $1.7 million. Prepare appropriate entries for Rand Medical from the beginning of the lease through the second lease payment on April 1, 2024.
Rand Medical manufactures lithotripters. Lithotripsy uses shock waves instead 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, Incorporated, on January 1, 2024. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) 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 $ 130,516-beginning of each period 5 years (20 quarters) 5 years 12% $ 2,000,000 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, 2024. 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 $1.7 million. Prepare appropriate entries for Rand Medical from the beginning of the lease through the second lease payment on April 1, 2024.
Chapter5: Gross Income: Exclusions
Section: Chapter Questions
Problem 39P
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Transcribed Image Text:Rand Medical manufactures lithotripters. Lithotripsy uses shock waves instead 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, Incorporated, on January 1,
2024.
Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)
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
$
130,516-beginning of each period
5 years (20 quarters)
5 years
12%
$ 2,000,000
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, 2024. 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 $1.7 million. Prepare appropriate entries for Rand Medical from the beginning of the lease through the
second lease payment on April 1, 2024.
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