P 15-4 Finance/sales-type lease; lessee and lessor 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 Lease term No residual value; no purchase option Economic life of lithotripter $130,516-beginning of each period 5 years (20 quarters) 5 years Implicit interest rate and lessee's incremental borrowing rate 12% Fair value of asset $2,000,000 computer PMTS 1. How should this lease be classified by Mid-South Urologists Group and by Physicians' Leasing? la. COMPLETE LEASE Amortization Table. 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 $1.7 million. Prepare appropriate entries for Rand Medical from the beginning of the lease through the second lease payment on April 1, 2021. Data: Lease Date Term-Years # of payments per year Quarterly payment Annual Interest Rate When Paid: BEG or END of pd? Fair Value of Asset COMPUTE THE PV OF THE LEASE PAYMENTS "PMT COMPUTATION" 1 x "Period Rate" Date Period / PYMT CASH PYMT (CR) "Effective" Interest Exp (Dr.) Pymt-Interest Decrease in O/S Lease Balance Outstanding Lease Balance 1/1/21 Inception 1/1/21 1 1/4/21 2 1/7/21 3 1/10/21 1/1/22 5 1/4/22 6 1/7/22 7 1/10/22 8 1/1/23 9 1/4/23 10 1/7/23 11 1/10/23 12 1/1/24 13 1/4/24 14 1/7/24 1/10/24 16 1/1/25 17 1/4/25 18 1/7/25 19 1/10/25 20 REQUIREMENT #3-LESSOR LEASES TO MID-SOUTH AND EARNS "SELLING PROFIT" LESSOR -- RAND MEDICAL (Lease "TO" Mid-South) 1/1/21 LESSEE -- MID-SOUTH (Lease "FROM" Physicians Leasing") 1/1/21 1/1/21 1/4/21 1/10/21 1/1/21 1/4/21 1/10/21 YEAR-END ADJUSTING ENTRIES 31/12/21 YEAR-END ADJUSTING ENTRIES 31/12/21 31/12/21 YEAR-END ADJUSTING ENTRIES 31/12/21 YEAR-END ADJUSTING ENTRIES 31/12/21 NEXT YEAR - 1/1/22 31/12/21 NEXT YEAR- 1/1/22 Financial Statement Reporting: A) What does LESSOR report on its 12/31/21 INCOME STATEMENT? Financial Statement Reporting: A) What does LESSEE report on its 12/31/21 INCOME STATEMENT? Net income effect $ Net income effect $ B) What does LESSOR report on its 12/31/21 BALANCE SHEET? B) What does LESSEE report on its 12/31/21 BALANCE SHEET