On January $1,2016,$ 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 and is given an option to buy the equipment for $$1$ at the end of the lease term, December $31,2024.$

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

The lessor incurs no material initial direct costs.

The collectibility of the rentals is reasonably assured, and there are no important uncertainties surrounding the amount of unreimbursable costs

yet to be incurred by the lessor.

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

The lessor calculates that the present value on January $1,2016$ 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:

Next Level Identify the classification of the lease transaction from Ballieu's point of view.

Prepare all the journal entries for Ballieu for the years $2016$ and $2017.$

Prepare all the journal entries for Ballieu for the years $2016$ and $2017.$ Additional Instructions

CHART OF ACCOUNTS

Ballieu Company

General Ledger

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ASSETS

REVENUE

$111$ Cash

$121$ Accounts Receivable

$122$ Lease Receivable

$141$ Inventory

$152$ Prepaid Insurance

$181$ Equipment

$198$ Accumulated Depreciation

LIABILITIES

$211$ Accounts Payable

$231$ Salaries Payable

$250$ Unearned Interest

$261$ Income Taxes Payable

Prepare all the journal entries for Ballieu for the years $2016$ and $2017.$ Additional Instructions

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EXPENSES

$500$ Cost of Asset Leased

$511$ Insurance Expense

$512$ Utilities Expense

$521$ Salaries Expense

$532$ Bad Debt Expense

$540$ Interest Expense

$541$ Depreciation Expense

$559$ Miscellaneous Expenses

$910$ Income Tax Expense

EQUITY

$311$ Common Stock

$331$ Retained Earnings