On January $1,2019,$ Ballieu Company leases specialty equipment with an economic life of $8$ years to Anderson Company. The lease contains the following terms and provisions:

$$ The lease is noncancelable and has a term of $8$ years.

$$ The annual rentals are $$34,500,$ payable at the beginning of each year.

$$ The interest rate implicit in the lease is $11\%.$

$$ Anderson agrees to pay all executory costs directly to a third party and is given an option to buy the equipment for $$1$ at the end of the lease term, December $31,2026.$

$$ The cost of the equipment to the lessor is $$137,000,$ and the fair value is approximately $$197,100.$

$$ Ballieu incurs no material initial direct costs.

$$ It is probable that Ballieu will collect the lease payments.

$$ Ballieu estimates that the fair value is expected to be significantly greater than $$1$ at the end of the lease term.

Ballieu calculates that the present value on January $1,2019,$ of $8$ annual payments in advance of $$34,500$ discounted at $11\%$ is $$197,070\mathrm{.}76($the $$1$ purchase option is ignored as immaterial$).$

Required:

$1.$ Next Level Identify the classification of the lease transaction from Ballieu$$s point of view. Give the reasons for your classification.

$2.$ Prepare all the journal entries for Ballieu for the years $2019$ and $2020.$