On January 1, 2019, Mackenzie Yoga Studios leased exercise equipment for a four-year period. Payments are $10,000 per year, first payable at the commencement date. Of this, $9,900 of the payment is for the lease of the equipment and $100 is for liability insurance forwarded by the lessor on behalf of the lessee to the insurance agency. Mackenzie provided a $20,000 residual value guarantee to the lessor. At the end of the lease term, Mackenzie can either return the equipment, which is expected to be worth $15,000 at that time, or purchase it for $12,000. The interest rate implicit in the lease is not readily determinable. Mackenzie’s incremental borrowing rate is 4%. The expected residual value of the equipment at the end of its eight-year economic life is $0. Mackenzie, which uses the straight-line method to depreciate similar assets, has a December 31 year end.

Required:

Prepare Mackenzie Yoga Studios’ journal entries for 2019 and January 1, 2020.