You are an internal auditor for Shannon Supplies, Inc, 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, 2021. are as follows SHANNON SUPPLIES INC Balance Sheet December 31, 2021 3 in thousands) Assets $2,49e 340 989 1,150 1,330 (470) $5.24 Investment in equity securities Accounts receivable net Inventory Equipment Lessi Accumulated depreciation Total assets Liabilities and shareholders Equity Accounts payable and accrued expenses income tax payable Commons stocks par Addition paid.in capital Retained learning total llities and shareholders equity 33,410 298 840 SHANNONS, INC Incotenent on the Year Ended Decebal in thousand Domaine tieds and deve Dan le Prey $3,670 Income Statement For the Year Ended becenter i 2021 (in thousands) Sales revenue Operating expenses cost of goods sold 51,230 Selling and administrative 005 Depreciation 25 Income before income tax Income tax expense Net Income 2210 51,460 (365) $1,095 Shannon'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 the shares with an original cost of $189.000 were sold in May 2021 Shannon accountants debited cash and credited investment in equity secunties for the $238.000 proceeds of the sale, b. At December 31, 2021, the fair value of the remaining equity securities in the investment portfolio was $368.500 c. The state of Alabama filed suit against Shannon in October 2019. 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 2021 now believes eventual payment to the state of $139.000 is probable most likely to be paid in 2024 d. The $1.150.000 inventory total, which was based on a physical count at December 31, 2021 was priced at cost. Based on your conversations with company accountants you determined that the inventory cost was overstated by $141.000 e Electronic counters costing $98.000 were added to the equipment on December 29, 2020 The cost was charged to repates. Shannon's equipment on which the counters were installed had a remaining useful life of four years on December 29, 2020 and being depreciated by the straigh:line method for boli financial and tax reporting 9. A new Tax law was enacted in 2021 which will cause Shannon's Income tax rate to change from 25 to 20beginning in 2022 ured 2 Record the gain on sale of investment with an original cost of $189,000 for $238,000. 2 Record the adjustment of equity securities for the investment of $238,000 as on the date of sale. Book 3 Record the fair value adjustment. Print 4 Record the loss-lawsuit. rences 5 Record correction of inventory error. 6 Record correct assets that were incorrectly expensed. 7 Record the 2021 adjusting entry for depreciation. Note: = journal entry has been entered 2 2 Record the adjustment of equity securities for the investment of $238,000 as on the date of sale. 3 Record the fair value adjustment. Book 4 Record the loss-lawsuit. Print 5 Record correction of inventory error. rences 6 Record correct assets that were incorrectly expensed. 7 Record the 2021 adjusting entry for depreciation. 00 Record the income tax expense. Note : journal entry has been entered TONIOWS SHANNON SUPPLIES, INC. Balance Sheet December 31, 2021 ($ in thousands) Assets Cash 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 $2,499 340 900 1,150 1,330 (470) $5,740 $3,410 310 298 848 890 $5,740 SHANNON SUPPLIES, INC. Income Statement $3,670 SHANNON SUPPLIES, INC. Income Statement For the Year Ended December 31, 2021 ($ in thousands) Sales revenue Operating expenses: Cost of goods sold $1,230 Selling and administrative 905 Depreciation 25 Income before income tax Income tax expense 2, 210 $1,460 (365) $1,995 Net income Shannon's income tax rate was 25% in 2021 and previous years. Durin (not considered when the above statements were prepared) was obtal a. Shannon's Investment portfolio consists of blue chip stocks held for shares with an original cost of $189.000 were solo in May 2021. Sha Income tax expense Net Income (365) $1,895 Shannon'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 the shares with an original cost of $189.000 were sold in May 2021. Shannon accountants debited cash and credited Investment in equity securities for the $238,000 proceeds of the sale. b At December 31, 2021, the fair value of the remaining equity securities in the investment portfolio was $368,500 c. The state of Alabama filed sult against Shannon in October 2019. seeking civil penalties and Injunctive rellef 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 2021, now believes eventual payment to the state of $139,000 is probable, most likely to be paid in 2024. d. The $1.150,000 Inventory total, which was based on a physical count at December 31, 2021. was priced at cost. Based on your conversations with company accountants, you determined that the Inventory cost was overstated by $141,000. e. Electronic counters costing $98.000 were added to the equipment on December 29, 2020. The cost was charged to repairs. 1 Shannon's equipment, on which the counters were installed, had a remaining useful life of four years on December 29, 2020, and being 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 Required: Prepare journal entries to record the effects on Shannon's accounting records at December 31, 2021. for each of the items describe 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.) View transac Viejournal entry worksheet Debit Credit General Journal No Transaction ences 1 Record the gain on sale of investment with an original cost of $189,000 for $238,000. 2 Record the adjustment of equity securities for the investment of $238,000 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. Note : = journal entry has been entered TIL HUIDICEL Ferences X 2 Record the adjustment of equity securities for the investment of $238,000 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. Note : journal entry has been entered