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Problem 15-4 (Algo) Finance/sales-type lease; lessee and lessor [LO15-1, 15-2, 15-3]
Rand Medical manufactures lithotripters. Lithotripsy uses shock waves instead of surgery to eliminate kidney stones. Physicians’
Leasing purchased a lithotripter from Rand for $2,450,000 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.)
Lease Description:
Quarterly lease payments
$159,882-beginning of each period
5 years (20 quarters)
Lease term
No residual value; no purchase option
Economic life of lithotripter
Implicit interest rate and lessee’s incremental borrowing
5 years
128
rate
Fair value of asset
000’0S S
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 $2.1 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 2
Lessee
Required 2
Required 1
Required 3
JOSse
Assume Mid-South Urologists Group leased the lithotripter directly from the manufacturer, Rand Medical, which produced the machine at
a cost of $2.1 million. Prepare appropriate entries for Rand Medical from the beginning of the lease through the second lease payment
2021 (If no entnu is renuirerd for a transactinn/event select”No inurnal entry renuired” in the first accouunt field Enter volur
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