P 15–3 – Rand Medical - Direct financing and sales-type lease; lessee and lessor ● LO3 LO5 LO6
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, 2011.
Collectibility 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?
2. Prepare appropriate
entries for both Mid-South Urologists Group and Physicians’ Leasing from
the inception of the lease through the second rental payment on April
1, 2011. Depreciation is 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
inception of the lease through the second lease payment on April 1,
2011.
