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:

SHANNON SUPPLIES, INCORPORATED

Balance Sheet

December $31,2024$

$($$ in thousands$)$

Assets

Cash $ $2,410$

Investment in equity securities $260$

Accounts receivable, net $820$

Inventory $1,070$

Equipment $1,250$

Less: Accumulated depreciation $(550)$

Total assets $ $5,260$

Liabilities and Shareholders$$ Equity

Accounts payable and accrued expenses $ $3,235$

Income tax payable $325$

Common stock, $$1$ par $210$

Additional paid$-$in capital $760$

Retained earnings $730$

Total liabilities and shareholders$$ equity $ $5,260$

SHANNON SUPPLIES, INCORPORATED

Income Statement

For the Year Ended December $31,2024$

$($$ in thousands$)$

Sales revenue $ $3,430$

Operating expenses:

Cost of goods sold $ $1,150$

Selling and administrative $897$

Depreciation $832,130$

Income before income tax $ $1,300$

Income tax expense $(325)$

Net income $ $975$

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:

Shannon$$s investment portfolio consists of blue chip stocks held for long$-$term appreciation. To raise working capital, some of the shares with an original cost of $$181,000$ were sold in May $2024.$ Shannon accountants debited cash and credited investment in equity securities for the $$222,000$ proceeds of the sale.

At December $31,2024,$ the fair value of the remaining equity securities in the investment portfolio was $$284,500.$

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$$s legal counsel previously believed that an unfavorable outcome of this litigation was not probable, but based on negotiations with state attorneys in $2024,$ now believes eventual payment to the state of $$131,000$ is probable, most likely to be paid in $2027.$

The $$1,070,000$ inventory total, which was based on a physical count at December $31,2024,$ was priced at cost$.$ Based on your conversations with company accountants, you determined that the inventory cost was overstated by $$133,000.$

A new tax law was enacted in $2024,$ which will cause Shannon$$s income tax rate to change from $25\%$ to $20\%$ beginning in $2025.$