Error corrections; investment
• LO20–6
Required:
1. Prepare the
2. Prepare the journal entry to correct the error assuming it is not discovered until early 2019. (Ignore income taxes.)
Wilkins Food Products Inc. acquired a packaging machine from Lawrence Specialists Corporation. Lawrence completed construction of the machine on January 1, 2016. In payment for the machine Wilkins issued a three-year 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 2018. As a result of the error, Wilkins understated interest expense by $45,000 in 2016 and $40,000 in 2017.
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Intermediate Accounting
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