You are internal auditor for Shannon Supplies, Incorporated, 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, 2024, are asfollows:AssetsCashSHANNON SUPPLIES, INCORPORATEDBalance SheetDecember 31, 2024($ in thousands)Investment in equity securitiesAccounts receivable, netInventoryEquipmentLess: Accumulated depreciationTotal assetsLiabilities and Shareholders' EquityAccounts payable and accrued expensesIncome tax payableCommon stock, $1 parAdditional paid-in capitalRetained earningsTotal liabilities and shareholders' equityNet incomeSHANNON SUPPLIES, INCORPORATEDIncome StatementFor the Year Ended December 31, 2024($ in thousands)Sales revenueOperating expenses:Cost of goods soldSelling and administrativeDepreciationIncome before income taxIncome tax expense$ 1,24090674$ 3,7002,220$ 1,480(370)$ 1,110$ 2,5003509101,1601,340(460)$ 5,800$ 3,370370300850910$ 5,800Shannon's income tax rate was 25% in 2024 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 $190,000 were sold in May 2024. Shannon accountants debited cash and credited investment inequity securities for the $240,000 proceeds of the sale.b. At December 31, 2024, the fair value of the remaining equity securities in the investment portfolio was $379,000.c. The state of Alabama filed suit against Shannon in October 2022, 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 2024, now believes eventual payment to the state of$140,000 is probable, most likely to be paid in 2027.d. The $1,160,000 inventory total, which was based on a physical count at December 31, 2024, was priced at cost. Based on yourconversations with company accountants, you determined that the inventory cost was overstated by $142,000.e. A new tax law was enacted in 2024, which will cause Shannon's income tax rate to change from 25% to 20% beginning in 2025.Required:Prepare journal entries to record the effects on Shannon's accounting records at December 31, 2024, for each of the items describedabove. Required:Prepare journal entries to record the effects on Shannon's accounting records at December 31, 2024, for each of the items describedabove.Note: 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.No1234LO56Transactiona(1)a(2)bCdeX Answer is complete but not entirely correct.Fair value adjustmentGain on investments (NI)Investment in equity securitiesFair value adjustmentLoss on investments (NI)Fair value adjustmentLoss - litigationLiability - litigationCost of goods soldInventoryGeneral JournalDeferred tax assetIncome tax payableIncome tax expenseDebit50,00050,00021,000140,000142,00035,000 X0xCredit50,00050,00021,000140,000142,00035,000

Journal entries refers to the entries which are passed by the businesses at the fiscal year end and…

You are internal auditor for Shannon Supplies, Incorporated, and are reviewing the company's preliminary financial statements. The statements, prepared after making the adjusting entries, but before closing entries for the year ended December 31, 2024, are as follows: Assets Cash SHANNON SUPPLIES, INCORPORATED Balance Sheet December 31, 2024 ($ in thousands) Investment in equity securities Accounts receivable, net Inventory Equipment Less: Accumulated depreciation Total assets Liabilities and Shareholders' Equity Accounts payable and accrued expenses Income tax payable Common stock, $1 par Additional paid-in capital Retained earnings Total liabilities and shareholders' equity $ 2,500 350 910 1,160 1,340 (460) $ 5,800 $ 3,370 370 300 850 910 $ 5.800

You are internal auditor for Shannon Supplies, Incorporated, and are reviewing the company's preliminary financial statements. The statements, prepared after making the adjusting entries, but before closing entries for the year ended December 31, 2024, are as follows: Assets Cash SHANNON SUPPLIES, INCORPORATED Balance Sheet December 31, 2024 ($ in thousands) Investment in equity securities Accounts receivable, net Inventory Equipment Less: Accumulated depreciation Total assets Liabilities and Shareholders' Equity Accounts payable and accrued expenses Income tax payable Common stock, $1 par Additional paid-in capital Retained earnings Total liabilities and shareholders' equity $ 2,500 350 910 1,160 1,340 (460) $ 5,800 $ 3,370 370 300 850 910 $ 5.800

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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