Wilkins Food Products Inc. acquired a packaging machine from Lawrence Specialists Corporation. Lawrence completed construction...
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Wilkins Food Products Inc. acquired a packaging machine from Lawrence Specialists Corporation. Lawrence completed construction of the machine on January 1, 2019. 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 14%. Lawrence made a conceptual error in preparing the amortization schedule, which Wilkins failed to discover until 2021 . As a result of the error, Wilkins understated interest expense by $55,000 in 2019 and $50,000 in 2020. Required: 1. Indicate in the table below which accounts are incorrect as a result of these errors at January 1,2021 and whether those accounts are understated or overstated. (lgnore income taxes.) 2. Prepare a journal entry to correct the error. 3. Will Wilkins account for the error (a) retrospectively or (b) prospectively? Complete this question by entering your answers in the tabs below. Indicate in the table below which accounts are incorrect as a result of these errors at January 1,2021 and whether those accounts are understated or overstated. (Ignore income taxes.)
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