QUESTION 6

USE THE FOLLOWING INFORMATION TO ANSWER THE NEXT (3) QUESTIONS:

Lambert Co. acquired a machine on June 30, 2015 and gave the seller $20,000 cash down and a two year non-interest bearing note calling for four semi-annual P&I payments of $25,000 each, with the first payment beginning on December 31, 2015. The prevailing rate of interest was 12% APR. Lambert recorded the purchase as follows:

Account Title	Debit	Credit
Machine	120,000
Note Payable		100,000
Cash		20,000

Lambert uses the straight-line method to depreciate its equipment with a 5-year life and no salvage. For the year ended December 31, 2015, the company reported Depreciation Expense of $12,000; Interest Expense of $0; and the balance in the note payable was $75,000. (The first cash payment was made as required on Dec. 31, 2015. The bookkeeper recorded the entire payment as principal reduction to the note.)

Required: Use the following information to help determine the errors, if any, on Lambert's financial statements for the year-ended December 31, 2015. State O for overstated; U for understated; or NE for No Effect. If there is an effect, state the O/U first, then the dollar amount. Do not space between the O/U and the dollar amount. For example, if you determine the book value of the asset is overstated by $8,000, record your answer as O8000.

	3%	6%	12%
Present Value of Ordinary Annuity of $1 for 4 periods	3.7171	3.4650	3.0373
Present Value of Ordinary Annuity of $1 for 8 periods	7.0197	6.2098	4.9676

Complete the following: (Round your answers up to the nearest whole dollar)

As of December 31, 2015
Book Value of Machine	Net Income	Carrying Value of Note
$____________________	$________________	$___________________

a. Determine the effect of this error (overstated/understated/no effect) on the Book Value of the Machine as reported on the December 31, 2015 Balance Sheet for Lambert Company. $[Blank_1]

1.25 points

QUESTION 7

Using the information presented in #7 above, answer the following:

b) Determine the effect of these errors on Net Income for the year ended December 31, 2015: $[Blank_2]

1.25 points

QUESTION 8

Using the information presented in #7 above, determine the following:

c) Determine the effect of the error on the Carrying Value of the Note Payable as of December 31, 2015: $[Blank_3]