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 $61,000 in 2019 and $56,000 in 2020.
Required:
1. Indicate in the table below which accounts are incorrect as a result of these errors at January 1, 2016 and whether those accounts are understated or overstated. (Ignore income taxes.)
Retained Earnings
intrest expense
amortization expense
cash notes payable
2. Prepare a journal entry to correct the error.