Maker Corp. manufactures imaging equipment. Easy Leasing purchased an MRI machine from Maker for $1,010,000 and...

Maker Corp. manufactures imaging equipment. Easy Leasing purchased an MRI machine from Maker for $1,010,000 and leased it to Imaging Group, Inc. on January 1, 2021.

Lease description:
Quarterly rental payments	$	78,065: beginning of each period
Lease term		4 years (16 quarters)
No residual value; no bargain purchase option
Economic life of MRI machine		4 years
Implicit interest rate and lessee’s incremental borrowing rate		12%
Fair value of asset	$	1,010,000
Present value of an annuity due of $1: n = 16, i = 3%		12.9379

Required:
1. How should this lease be classified by Imaging Group and by Easy Leasing?
2. Prepare appropriate entries for both Imaging Group and Easy Leasing from the beginning of the lease through the second rental payment on April 1, 2021. Depreciation and amortization are recorded at the end of each fiscal year (December 31).
3. Assume Imaging Group leased the machine directly from the manufacturer, Maker Corp., which produced the machine at a cost of $710,000. Prepare appropriate entries for Maker from the beginning of the lease through the second rental payment on April 1, 2021.

Expert Solution

1.

This lease is to be categorized as a financing/capital lease because at least one of the finance lease criteria is met and during the lease, the risks and rewards of the asset have been fully transferred.

Hence, both the companies, Imaging Group and Easy Leasing is to classify it as Finance Lease.

2.

Journal entries from January 1, 2021 till April 1, 2021:

ekkarill92 answered 2 years ago

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