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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
Financial Accounting
15th Edition
ISBN:9781337272124
Author:Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:Carl Warren, James M. Reeve, Jonathan Duchac
Chapter15: Investments And Fair Value Accounting
Section: Chapter Questions
Problem 2PA: Rios Financial Co. is a regional insurance company that began operations on January 1, Year 1. The...
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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, $1 par Additional paid-in capital Retained earnings Total liabilities and shareholders' equity Net income SHANNON SUPPLIES, INCORPORATED Income Statement For the Year Ended December 31, 2024 ($ in thousands) Sales revenue Operating expenses: Cost of goods sold Selling and administrative Depreciation Income before income tax Income tax expense $ 1,240 906 74 $ 3,700 2,220 $ 1,480 (370) $ 1,110 $ 2,500 350 910 1,160 1,340 (460) $ 5,800 $ 3,370 370 300 850 910 $ 5,800 Shannon'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 the shares with an original cost of $190,000 were sold in May 2024. Shannon accountants debited cash and credited investment in equity 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 of environmental regulations regulating emissions. Shannon's legal counsel previously believed that an unfavorable outcome of this litigation 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 your conversations with company accountants, you determined that the inventory cost was overstated by $142,000. e. A new tax law was enacted in 2024, which will cause Shannon's income tax rate to change from 25% to 20% beginning in 2025. Required: Prepare journal entries to record the effects on Shannon's accounting records at December 31, 2024, for each of the items described above.
Transcribed Image Text:You are internal auditor for Shannon Supplies, Incorporated, and are reviewing the company's preliminary financial statements. The statements, prepared after making the adjusting entries, but before closing entries for the year ended December 31, 2024, are as follows: Assets Cash SHANNON SUPPLIES, INCORPORATED Balance Sheet December 31, 2024 ($ 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, $1 par Additional paid-in capital Retained earnings Total liabilities and shareholders' equity Net income SHANNON SUPPLIES, INCORPORATED Income Statement For the Year Ended December 31, 2024 ($ in thousands) Sales revenue Operating expenses: Cost of goods sold Selling and administrative Depreciation Income before income tax Income tax expense $ 1,240 906 74 $ 3,700 2,220 $ 1,480 (370) $ 1,110 $ 2,500 350 910 1,160 1,340 (460) $ 5,800 $ 3,370 370 300 850 910 $ 5,800 Shannon'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 the shares with an original cost of $190,000 were sold in May 2024. Shannon accountants debited cash and credited investment in equity 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 of environmental regulations regulating emissions. Shannon's legal counsel previously believed that an unfavorable outcome of this litigation 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 your conversations 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 described above.
Required: Prepare journal entries to record the effects on Shannon's accounting records at December 31, 2024, for each of the items described above. Note: 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. No 1 2 3 4 LO 5 6 Transaction a(1) a(2) b C d e X Answer is complete but not entirely correct. Fair value adjustment Gain on investments (NI) Investment in equity securities Fair value adjustment Loss on investments (NI) Fair value adjustment Loss - litigation Liability - litigation Cost of goods sold Inventory General Journal Deferred tax asset Income tax payable Income tax expense Debit 50,000 50,000 21,000 140,000 142,000 35,000 X 0x Credit 50,000 50,000 21,000 140,000 142,000 35,000
Transcribed Image Text:Required: Prepare journal entries to record the effects on Shannon's accounting records at December 31, 2024, for each of the items described above. Note: 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. No 1 2 3 4 LO 5 6 Transaction a(1) a(2) b C d e X Answer is complete but not entirely correct. Fair value adjustment Gain on investments (NI) Investment in equity securities Fair value adjustment Loss on investments (NI) Fair value adjustment Loss - litigation Liability - litigation Cost of goods sold Inventory General Journal Deferred tax asset Income tax payable Income tax expense Debit 50,000 50,000 21,000 140,000 142,000 35,000 X 0x Credit 50,000 50,000 21,000 140,000 142,000 35,000
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