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 $31,000, payable at the beginning of each year.

The interest rate implicit in the lease is 12%.

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 $162,500, and the fair value is approximately $172,500.

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 $31,000 discounted at 12% is $172,476.47 (the $1 purchase option is ignored as immaterial).

Required: Prepare all the journal entries for Ballieu for the years 2019 and 2020.