You are internal auditor for Shannon Supplies, Inc., and are reviewing the companys preliminary financial statements. The statements, prepared after making the adjusting entries, but before closing entries for the year ended December 31, 2016, are as follows:

SHANNON SUPPLIES, INC.

Balance Sheet

December 31, 2016

($ in 000s)

Assets

Cash $ 2,440

Investments 290

Accounts receivable, net 850

Inventory 1,100

Property, plant, and equipment 1,280

Less: Accumulated depreciation (520)

Total assets $ 5,440

Liabilities and Stockholders Equity

Accounts payable and accrued expenses $ 3,360

Income tax payable 260

Common stock, $1 par 240

Additional paid-in capital 790

Retained earnings 790

Total liabilities and shareholders equity $ 5,440

SHANNON SUPPLIES, INC.

Income Statement

For the Year Ended December 31, 2016

($ in 000s)

Sales revenue $ 3,480

Operating expenses:

Cost of goods sold $ 1,180

Selling and administrative 900

Depreciation 80 2,160

Income before income tax $ 1,320

Income tax expense (528)

Net income $ 792

Shannons income tax rate was 40% in 2016 and previous years. During the course of the audit, the following additional information (not considered when the above statements were prepared) was obtained:

a.

Shannons 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 $184,000 were sold in May 2016. Shannon accountants debited cash and credited investments for the $228,000 proceeds of the sale.

b.

At December 31, 2016, the fair value of the remaining securities in the portfolio was $316,000.

c.

The state of Alabama filed suit against Shannon in October 2014 seeking civil penalties and injunctive relief for violations of environmental regulations regulating emissions. Shannons legal counsel previously believed that an unfavorable outcome was not probable, but based on negotiations with state attorneys in 2016, now believe eventual payment to the state of $134,000 is probable, most likely to be paid in 2019.

d.

The $1,100,000 inventory total, which was based on a physical count at December 31, 2016, was priced at cost. Based on your conversations with company accountants, you determined that the inventory cost was overstated by $136,000.

e.

Electronic counters costing $84,000 were added to the equipment on December 29, 2015. The cost was charged to repairs.

f.

Shannons equipment on which the counters were installed had a remaining useful life of four years on December 29, 2015, and is being depreciated by the straight-line method for both financial and tax reporting.

g.

A new tax law was enacted in 2016 which will cause Shannons income tax rate to change from 40% to 35% beginning in 2017.

Required:

Prepare journal entries to record the effects on Shannons accounting records at December 31, 2016, 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.)

ReferenceseBook & Resources

General JournalDifficulty: 3 HardLearning Objective: 20-06 Understand and apply the four-step process of correcting and reporting errors, regardless of the type of error or the timing of its discovery.