E 14-16 – Wilkins Food Products, Inc. – Error in amortization schedule. 

Wilkins 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?