Determine the effect of these errors on Net Income for the year ended December 3

Question

Determine the effect of these errors on Net Income for the year ended December 31, 2013:

Determine the effect of the error on the Carrying Value of the Note Payable as of December 31, 2013:

Lambert Co. acquired a machine on June 30, 2013 and gave the seller $20,000 cash down and a two year $100,000 non-interest bearing note calling for semi-annual payments (which include P&l;), with the first payment beginning on December 31, 2013. The prevailing rate of interest was 12% APR. Lambert recorded the purchase as follows: 630 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 2013, 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, 2013. 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, 2013. 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. 8% 12% Present Value of Ordinary Annuity of $1 for 4 periods Present Value of Ordinary Annuity of $1 for 8 periods 3.4650 6.2098 3.0373 4.9676 7.0197

Explanation / Answer

Determine the effect of these errors on Net Income for the year ended December 3

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