ACC 306 Week 2 Assignment E 14-16, E 14-18, E 15-25, P14-21, P15-3

May 1st, 2015
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ACC 306 Week 2 Assignment E 14-16, E 14-18, E 15-25, P14-21, P15-3

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E 1416 - Wilkins Food Products, Inc. - Error in amortization schedule LO3Wilkins Food Products, Inc., acquired a packaging machine from Lawrence Specialists Corporation. Lawrence completed construction of the machine on January 1, 2009. 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 2011. The error had caused Wilkins to understate interest expense by $45,000 in 2009 and $40,000 in 2010.Required:1.Determine which accounts are incorrect as a result of these errors at January 1, 2011, 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?Exercise 14-16Requirement 1 The error caused both 2009 net income and 2010 net income to be overstated, so retained earnings is overstated by a total of $85,000. Also, the note payable would be understated by the same amount. Remember, the entry to record interest is:Interest expense xxxNote payable (difference)xxxCashxxxSo, if interest expense is understated, the reduction in the note will be too much, causing the balance in that account to be understated.Requirement 2 Retained earnings (overstatement of 2009-2010 income)85,000Note p

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