Wilkins Food Products, Inc., acquired a packaging machine from Lawrence Specialists Corporation. Lawrence completed construction of the machine on January 1, 2014. In payment for the machine Wilkins issued a threeyear installment note to be paid in three equal payments at the end of each year. The payments include interest at the rate of 10%. Lawrence made a conceptual error in preparing the amortization schedule, which Wilkins failed to discover until 2016. The error had caused Wilkins to understate interest expense by $45,000 in 2014 and $40,000 in 2015. Required: 1. Determine which accounts are incorrect as a result of these errors at January 1, 2016, before any adjustments. Explain your answer. (Ignore income taxes.) 2. Prepare a journal entry to correct the error. 3. What other step(s) would be taken in connection with the error?
Wilkins Food Products, Inc., acquired a packaging machine from Lawrence Specialists Corporation. Lawrence completed construction of the machine on January 1, 2014. In payment for the machine Wilkins issued a threeyear installment note to be paid in three equal payments at the end of each year. The payments include interest at the rate of 10%. Lawrence made a conceptual error in preparing the amortization schedule, which Wilkins failed to discover until 2016. The error had caused Wilkins to understate interest expense by $45,000 in 2014 and $40,000 in 2015. Required: 1. Determine which accounts are incorrect as a result of these errors at January 1, 2016, before any adjustments. Explain your answer. (Ignore income taxes.) 2. Prepare a journal entry to correct the error. 3. What other step(s) would be taken in connection with the error?
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