Rand Medical manufactures lithotripters. Lithotripsy uses shock waves instead of surgery to eliminate kidney stones. Physicians Leasing purchased a lithotripter from Rand for $2,420,000 and leased it to Mid-South Urologists Group, Incorporated, on January 1, 2024.

Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)

Lease Description:
Quarterly lease payments	$ 171,219beginning 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	16%
Fair value of asset	$ 2,420,000

Required:

How should this lease be classified by Mid-South Urologists Group and by Physicians' Leasing?

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, 2024. Adjusting entries are recorded at the end of each fiscal year (December 31).

Assume Mid-South Urologists Group leased the lithotripter directly from the manufacturer, Rand Medical, which produced the machine at a cost of $2.1 million. Prepare appropriate entries for Rand Medical from the beginning of the lease through the second lease payment on April 1, 2024.