HW - Ch 20-2 Prepare journal entries to record the effects on Shannon’s accounting records at December 31, 2021, for each of the items described above. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not round intermediate calculations. Enter your answers in whole dollars not in thousands of dollars.)(1) Record the gain on sale of investment with an original cost of $186,000 for $232,000(2) Record the adjustment of equity securities for the investment of $232,000 as on the date of sale.(3) Record the fair value adjustment.(4) Record the loss-lawsuit.(5) Record correction of inventory error.(6)Record correct assets that were incorrectly expensed.(7) Record the 2021 adjusting entry for depreciation.(8)Record the income tax expense. Required:Prepare journal entries to record the effects on Shannon's accounting records at December 31, 2021, for each of the items describedabove. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not roundintermediate calculations. Enter your answers in whole dollars not in thousands of dollars.) You are an internal auditor for Shannon Supplies, Inc., and are reviewing the company's preliminary financial statements. Thestatements, prepared after making the adjusting entries, but before closing entries for the year ended December 31, 2021, are asfollows:AssetsCashInvestment in equityAccounts receivable, netInventoryEquipmentSHANNON SUPPLIES, INC.Balance SheetDecember 31, 2021($ in thousands)securitiesLess: Accumulated depreciationTotal assetsLiabilities and Shareholders' EquityAccounts payable and accrued expensesIncome tax payableCommon stock, $1 parAdditional paid-in capitalRetained earningsTotal liabilities and shareholders' equitySHANNON SUPPLIES, INC.Income StatementFor the Year Ended December 31, 2021($ in thousands)Net incomeSales revenueOperating expenses:Cost of goods soldSelling and administrative.DepreciationIncome before income taxIncome tax expense$1,20090278$3,5802,180$1,400(350)$1,050$2,4603108701,1201,300(500)$5,560$3,380280260810830$5,560Shannon's income tax rate was 25% in 2021 and previous years. During the course of the audit, the following additional information(not considered when the above statements were prepared) was obtained:a. Shannon's investment portfolio consists of blue chip stocks held for long-term appreciation. To raise working capital, some of theshares with an original cost of $186,000 were sold in May 2021. Shannon accountants debited cash and credited investment inequity securities for the $232,000 proceeds of the sale.b. At December 31, 2021, the fair value of the remaining equity securities in the investment portfolio was $337,000.c. The state of Alabama filed suit against Shannon in October 2019, seeking civil penalties and injunctive relief for violations ofenvironmental regulations regulating emissions. Shannon's legal counsel previously believed that an unfavorable outcome of thislitigation was not probable, but based on negotiations with state attorneys in 2021, now believes eventual payment to the state of$136,000 is probable, most likely to be paid in 2024.d. The $1,120,000 inventory total, which was based on a physical count at December 31, 2021, was priced at cost. Based on yourversations with company accountants, you determined t the inventory cost was ated by $138,000e. Electronic counters costing $92,000 were added to the equipment on December 29, 2020. The cost was charged to repairs.f. Shannon's equipment, on which the counters were installed, had a remaining useful life of four years on December 29, 2020, and isbeing depreciated by the straight-line method for both financial and tax reporting.g. A new tax law was enacted in 2021 which will cause Shannon's income tax rate to change from 25% to 20% beginning in 2022.

A Journal entry is a process of recording the day-to-day transactions of a business either economic…

Answered: Prepare journal entries to record the…

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q