On January 1, 2018, the Sattler Corporation signs a 5 year noncancellable lease for a nonspecialized machine. The terms of the lease call for Sattler to pay $20,000 per year on January 1, beginning January 1, 2018. The machine has an estimated useful life of 7 years a fair value of $95,000 and an unguaranteed residual value of approximately $19,000 at the end of the lease term. The machine reverts back to the lessor at the end of the lease term. The company uses straight-line amortization and its incremental borrowing rate is 10%. The rate implicit in the lease is unknown. Required

1. Identify the type of lease involved for the lessee and give reasons for your classifications.

2. Prepare appropriate journal entries for 2018 and 2019 for the lessee.