Maker Corp. manufactures imaging equipment. Easy Leasing purchased an MRI machine from Maker for $1,000,000 and leased it to Imaging Group, Inc., on January 1, 2013. Collectibility of the rental payments is reasonably assured, and there are no lessor costs yet to be incurred. Required: 1. How should this lease be classified by Imaging Group and by Easy Leasing? 2. Prepare appropriate entries for both Imaging Group and Easy Leasing from the inception of the lease through the second rental payment on April 1, 2013. Depreciation is recorded at the end of each fiscal year (December 31). 3. Assume Imaging Group leased the machine directly from the manufacturer, Maker Corp., which produced the machine at a cost of $700,000. Prepare appropriate entries for Maker from the inception of the lease through the second rental payment on April 1, 2013.

Lease description Quarterly rental payments Lease term No residual value; no BPO Economic life of MRI machine 5 years Implicit interest rate and $65,258: beginning of each period 5 years (20 quarters) lessee's incremental borrowing rate 12% $1,000,000 Fair value of asset Present value of an annuity due of $ 1: n-20, i-3% 15.3238