Wilkins Finance Assignment Help With Solution

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 $122,000 in 2009 and $13,000 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?

Requirement 1

The error caused both 2009 net income and 2010 net income to be (Over/Under Stated) so retained earnings is (Over/Under Stated) by a total of $85,000. Also, the note payable would be (Over/Under Stated) by the same amount.

So, if interest expense is (Over/Under Stated), the reduction in the note will be too much, causing the balance in that account to be (Over/Under Stated)

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Related Services

Rand Medical manufactures lithotripters. Lithotripsy uses shock waves instead of surgery to eliminate kidney stones. Physicians’ Leasing purchased a lithotripter from Rand for $2,000,000 and leased it to Mid-South Urologists Group, Inc., on January 1, 2011.

Lease Description:

Quarterly lease payments $138000—beginning of each period
Lease term 5 years (20 quarters)
No residual value; no BPO
Economic life of lithotripter 5years
Implicit interest rate and lessee’s incremental borrowing rate 12%
Fair value of asset $2,000,000

Collectibility of the lease payments is reasonably assured, and there are no lessor costs yet to be incurred.

Required:

1. How should this lease be classified by Mid-South Urologists Group and by Physicians’ Leasing?

2. Prepare appropriate entries for both Mid-South Urologists Group and Physicians’ Leasing from the inception of the lease through the second rental payment on April 1, 2011. Depreciation is recorded at the end of each fiscal year (December 31).

3. Assume Mid-South Urologists Group leased the lithotripter directly from the manufacturer, Rand Medical, which produced the machine at a cost of $1.7 million. Prepare appropriate entries for Rand Medical from the inception of the lease through the second lease payment on April 1, 2011.

Product Code :Fin187

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