Matteo Laboratories Ltd. (MLL) leased lab equipment from LabEquip Corp (LEC). The lease term is three years with an annual rent of $40,000, due at the beginning of the year. Initial costs for installation were $20,000, paid by MLL. The equipment has an expected useful life of four years and a fair value of $250,000. MLL will use this equipment to carry out lab tests on hazardous materials; consequently, the lessor requires that MLL decommission the equipment at the end of the lease at a cost of $10,000 prior to the asset reverting to the lessor. The lease commenced on 1 January 20X4. MLL’s incremental borrowing rate is 5%.

Required:
Record the journal entries at inception of the lease and determine the amount of the ROU asset and lease liability on 1 January 20X4.