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-yearinstallment note to be paid in three equal payments at the end of each year. The payments include interest at the rateof 10%. Lawrence made a conceptual error in preparing the amortization schedule, which Wilkins failed to discoveruntil 2018. As a result of the error, Wilkins understated interest expense by $45,000 in 2016 and $40,000 in 2017.Required:1. Determine which accounts are incorrect as a result of these errors at January 1, 2018, before any adjustments.Explain your answer. (Ignore income taxes.)2. Prepare a journal entry to correct the error.3. What other steps would be taken in connection with the error?
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
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.
Required:
1. Determine which accounts are incorrect as a result of these errors at January 1, 2018, before any adjustments.
Explain your answer. (Ignore income taxes.)
2. Prepare a
3. What other steps would be taken in connection with the error?
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