Question

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 8%. Lawrence made a conceptual error in preparing the amortization schedule, which Wilkins failed to discover until 2021. The error had caused Wilkins to understate interest expense by $49,000 in 2019 and $44,000 in 2020. Required: 1. Determine which accounts are incorrect as a result of these errors at January 1, 2021, before any adjustments. (Ignore income taxes). 2. Prepare a journal entry to correct the error. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Determine which accounts are incorrect as a result of these errors at January 1, 2021, before any adjustments. (Ignore income taxes). (Select all that apply.) JOOOOOOO Note payable understated. Retained earnings understated. 2019 Interest expense overstated. 2019 Inte expense und stated. Retained earnings overstated. Note payable overstated. 2020 Interest expense overstated. 2020 Interest expense understated.

Answer 1

Answer
1)	The retained earnings account would be overstated by a total $93,000 ($49,000+$44,000) of 2019 and 2020. Also, the notes payable would be understated by the same amount of $93,000
Journal entry
2)
Date	Account Titles and Explanations	Debit	Credit
	Retained earnings	$          93,000
	To, Notes payable		$            93,000
	(To record the correct error 2019 and 2020)