Financial Accounting 2Semester 2 2014-2015Case Analysis Lease AccountingDue Date: Weighting: 20%This is an individual case analysis

Question 1 Manufacturers Southern leased high-tech electronic equipment from Edison Leasing on 1 January 2014. The fair market value of the equipment at this date is $112,080. At the end of its economic life the equipment is expected to have no residual value.Relevant information

Lease term2 years (quarterly periods)

Quarterly lease payments$15,000 commencing 1 January 2014

Economic life of asset2 years

Interest rate 8%

Required 1. Prepare a lease amortization schedule for the two years of the lease2. Prepare appropriate journal entries for transactions that occurred for Manufacturers Southern from the commencement of the lease through to 31 December 2014.3. Prepare appropriate adjusting entries for Manufacturers Southern at 31 December 2014

Question 2Rand Medical manufactures lithotripters. Lithotripsy uses shock waves instead of surgery to eliminate kidney stones. Physicians Leasing purchased a lithotripter from Rand for $2 million and leased it to Mid-South Urologists Group on January 1 2013. Lease Description

Quarterly lease payments$130,516 beginning of each period

Lease term5 years (quarters)

No residual value; no BPO

Economic life of lithotripter5 years

Interest rate12%

Fair value of asset$2 million

Collectability of the lease payments is reasonably assured and there are no lessor costs yet to be incurred.Required1. How should this lease be classified by Mid-South Urologists Group and by Physicians Leasing? Prepare an analysis to explain your answer.2. For both the lessor and the lessee prepare appropriate journal entries for the following datesa. January 1 2013b. April 1 20133. Prepare the adjusting entry to record depreciation at 31 March 2013. You should assume that both companies prepare quarterly financial statements and they calculate depreciation on a straight-line basis.4. Which company will record depreciation on the lithotripter?