Rand Medical manufactures lithotripters. Lithotripsy uses shockwaves instead of surgery to eliminate kidney stones. Physicians’Leasing purchased a lithotripter from Rand for $2,730,000 andleased it to Mid-South Urologists Group, Inc., on January 1, 2018.(FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of$1) (Use appropriate factor(s) from the tablesprovided.)
   

Lease Description:
Quarterly lease payments	$	193,152—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 borrowingrate		16%
Fair value of asset	$	2,730,000

Required:
1. How should this lease be classified by Mid-SouthUrologists Group and by Physicians' Leasing?
2. Prepare appropriate entries for both Mid-SouthUrologists Group and Physicians' Leasing from the beginning of thelease through the second rental payment on April 1, 2018. Adjustingentries are recorded at the end of each fiscal year (December31).
3. Assume Mid-South Urologists Group leased thelithotripter directly from the manufacturer, Rand Medical, whichproduced the machine at a cost of $2.3 million. Prepare appropriateentries for Rand Medical from the beginning of the lease throughthe second lease payment on April 1, 2018.