Rand Medical manufactures lithotripters.
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. Inc. on January 1, 2021
Lease Description:
Quarterly lease payments $130,516 - beginning of each period
Lease Terms 5 years (20 quarters)
No residual value; no purchase option
Economic life of lithotripter 5 years
Implicit interest rate and lessee's incremental borrowing rate is 12%
Fair value of asset $2,000,000
1. How should this lease be classified by Mid-South Urologists Group and by Physician's Leasing?
2. Prepare appropriate entries for both Mid-South Urologists Group and Physician's Leasing from the beginning of the lease through the second rental payment on April 1, 2021;
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 Medial from the beginning of the lease through the second lease payment on April 1, 2021.
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