You are internal auditor for Shannon Supplies, Inc., and arereviewing the companyâs preliminary financial statements. Thestatements, prepared after making the adjusting entries, but beforeclosing entries for the year ended December 31, 2016, are asfollows: 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 Stockholdersâ 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 shareholdersâ 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 Shannonâs income tax rate was 40% in 2016 and previous years.During the course of the audit, the following additionalinformation (not considered when the above statements wereprepared) was obtained: a. Shannonâs investment portfolio consists of blue chip stocksheld for long-term appreciation. To raise working capital, some ofthe 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 remainingsecurities in the portfolio was $316,000. c. The state of Alabama filed suit against Shannon in October2014 seeking civil penalties and injunctive relief for violationsof environmental regulations regulating emissions. Shannonâs legalcounsel previously believed that an unfavorable outcome was notprobable, 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 physicalcount at December 31, 2016, was priced at cost. Based on yourconversations with company accountants, you determined that theinventory cost was overstated by $136,000. e. Electronic counters costing $84,000 were added to theequipment on December 29, 2015. The cost was charged torepairs. f. Shannonâs equipment on which the counters were installed had aremaining useful life of four years on December 29, 2015, and isbeing depreciated by the straight-line method for both financialand tax reporting. g. A new tax law was enacted in 2016 which will cause Shannonâsincome tax rate to change from 40% to 35% beginning in 2017. Required: Prepare journal entries to record the effects on Shannonâsaccounting records at December 31, 2016, for each of the itemsdescribed above. (If no entry is required for a transaction/event,select "No journal entry required" in the first account field. Donot round intermediate calculations. Enter your answers in wholedollars not in thousands of dollars.)
ReferenceseBook & Resources General JournalDifficulty: 3 HardLearning Objective: 20-06Understand and apply the four-step process of correcting andreporting errors, regardless of the type of error or the timing ofits discovery.
Related questions
On December 31, 2016, the accounts inthe ledger of Monroe Entertainment Co. are listed below. Allaccounts have normal balances. At the beginning of the year,retained earning balance is $4,000.
Note Payable due 10/31/2018 | $ 10,000 |
Accounts Receivable | 6,000 |
Accumulated Depreciation- Equipment (Creditbalance) | 6,000 |
Dividends | 1,000 |
Cash | 16,000 |
Depreciation Expense | 5,000 |
Equipment | 12,000 |
Fees Earned | 50,000 |
Rent Expense | 6,000 |
Supplies | 2,000 |
Supplies Expense | 3,000 |
Wages Expense | 21,000 |
Wages Payable | 2,000 |
Q1. Generate the Income statement
| Monroe Entertainment Company Income Statement | ||
For the Year Ended December 31, 2016 | ||
Revenues: | ||
S | ||
Total Revenue | ||
Expenses: | ||
Total Expenses: | ||
Net Income | $ | |
Please generate Retained Earnings Statement based uponthe above information and net income youcalculated.
Monroe Entertainment Company
Retained Earnings Statement
For the Year Ended Dec 31, 2016
Retained Earnings at beginning of the year | $___________________ |
Net Income | _____________________ |
Less: Dividends | _____________________ |
Net Increase/(Decrease) in the end | ______________________ |
Retained Earnings at end of the year | $_____________________ |
Please generate Balance Sheet as of December 31, 2016.
| Monroe Entertainment Company Balance Sheet | |||||
Dec 31, 2016 | |||||
Assets | Liabilities | ||||
$ | $ | ||||
Total Assets | $ | Total Liabilities and Shareholdersâ Equity | $ | ||
Denari Inc. had the following information at December 31,2016:
| Denari Inc Balance Sheet at December 31, 2016 | ||
| Assets | 2016 | 2015 |
| Cash | $ 2,800 | $ 2,300 |
| Accounts Receivable | 760 | 500 |
| Prepaid Expenses | 340 | 400 |
| Machinery (net) | $ 5,600 | $ 6,000 |
| Total Assets | $ 9,500 | $ 9,200 |
| Liabilities | ||
| Accounts Payable | $ 1,400 | $ 1,600 |
| Unearned Revenue | 800 | 725 |
| Long-Term NotesPayable | $ 3,400 | $ 3,000 |
| Total Liabilities | $ 5,600 | $ 5,325 |
| Equity | ||
| Common Stock (nopar) | $ 80 | $ 75 |
| Retained Earnings | 3,820 | 3,800 |
| Total Equity | $ 3,900 | $ 3,875 |
| Total Liabilities andEquity | $ 9,500 | $ 9,200 |
| Denari Inc Income Statement For the Year Ended December 31, 2016 | |
| Service Revenue | $ 10,000 |
| Salary Expense | $ (6,000) |
| Utilities Expense | (2,300) |
| Depreciation Expense | (2,000) |
| Gain on Sale ofMachinery | $ 390 |
| Net Income | $ 90 |
During the year, Denari:
bought new machinery and sold old machinery for $990 cash
repaid $1,100 of notes payable and borrowed new notes
issued new (no par value) common stock for cash
declared and paid cash dividends
Prepare Denariâs Cash Flow Statement for the year endedDecember 31, 2016, using the indirect method.
