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 $ $171,219$beginning 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\mathrm{.}1$ million. Prepare appropriate entries for Rand Medical from the beginning of the lease through the second lease payment on April $1,2024.$