Concept explainers
Finance /sales-type lease; lessee and lessor
• LO15–1, LO15–2, LO15–3
Rand Medical manufactures lithotripters. Lithotripsy uses shock waves instead of surgery to eliminate kidney stones. Physicians’ Leasing purchased a lithotripter from Rand for $2,000,000 and leased it to Mid-South Urologists Group, Inc. on January 1, 2018.
Lease Description: | |
Quarterly lease payments | $130,516—beginning of each period |
Lease term 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 | 12% |
Fair value of asset | $2,000,000 |
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, 2018.
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, 2018.
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Chapter 15 Solutions
INTERMEDIATE ACCT VOL.2>CUSTOM<
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