Reference no: EM131289269
Rand Medical manufactures lithotripters. Lithotripsy uses shock waves instead of surgery to eliminate kidney stones. Physicians' Leasing purchased a lithotripter from Rand for $1,540,000 and leased it to Mid-South Urologists Group, Inc., on January 1, 2016. Lease Description: Quarterly lease payments $ 100,497 —beginning of each period Lease term 5 years (20 quarters) No residual value; no BPO Economic life of lithotripter 5 years Implicit interest rate and lessee's incremental borrowing rate 12 % Fair value of asset $ 1,540,000 Collectibility of the lease payments is reasonably assured, and there are no lessor costs yet to be incurred.
Required: 1. How should this lease be classified by Mid-South Urologists Group and by Physicians' Leasing?
Mid-south urologist group:
a. Capital lease .
b. Capital lease: Direct financing lease .
c. Capital lease: Sales-type lease
d. Operating lease .
Physicians' Leasing?
a. Capital lease
b. Capital lease: Direct financing lease .
c. Capital lease: Sales-type lease
d. Operating lease
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