Wilkins Food Products Inc. acquired a packaging machine from Lawrence Specialists Corporation. Lawrence completed construction of the machine on January 1, 2014. 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 13%. Lawrence made a conceptual error in preparing the amortization schedule which Wilkins failed to discover until 2016. As a result of the error, Wilkins understated interest expense by $60,000 in 2014 and $55,000 in 2015. 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.