Rand Medical manufactures lithotripters

Rand Medical manufactures lithotripters. Lithotripsy uses shock waves instead of surgery to eliminate kidney stones. Physicians' Leasing purchased a lithotripter from Rand for $2,150,000 and leased it to Mid-South Urologists Group, Inc., on January 1, 2021. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) 

   Lease Description:   Quarterly lease payments   $152,116—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 $2,150,000 

Required:

1) How should this lease be classified by Mid-South Urologists Group and by Physicians' Leasing?

2) 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, 2021. Adjusting entries are recorded at the end of each fiscal year (December 31).

3) Assume Mid-South Urologists Group leased the lithotripter directly from the manufacturer, Rand Medical, which produced the machine at a cost of $1.8 million. Appropriate entries for Rand Medical from the beginning of the lease through the second lease payment on April 1, 2021.