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 $130,516beginning 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. required 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. 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. require appropriate entries for Rand Medical from the

beginning of the lease through the second lease payment on April 1, 2018.