Rand Medical manufactures lithotripters. Lithotripsy uses shock waves instead of surgery to eliminate kidney stones. Physicians Leasing

Rand Medical manufactures lithotripters. Lithotripsy uses shock waves instead of surgery to eliminate kidney stones. Physicians’ Leasing purchased a lithotripter for $3,000,000 and leased it to Mid-South Urologists Group on January 1, 2013. Both companies record appropriate adjusting entries quarterly.

Required:
The following two situations are independent of each other.
1. Mid-South Urologists Group considers it unlikely that the lease will be renewed. Prepare appropriate entries for Mid-South Urologists Group and Physicians’ Leasing from the commencement of the lease through the second lease payment on April 1, 2013.
2. Because of extensive and costly leasehold improvements related to making the lithotripter available to patients, Mid-South Urologists Group feels it will have significant economic incentive to renew the lease. Prepare appropriate entries for Mid-South Urologists Group and Physicians’ Leasing from the commencement of the lease through the second lease payment on April 1,2013.

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Lease Description: Quarterly lease payments Lease term $130,516-beginning of each period 5 years (20 quarters), renewable for another 5 years 10 years 12% $3,000,000 Economic life of lithotripter Implicit interest rate Fair value of asset