Your comparison of the gross margin percent for Jones Drugs for the years 2015 through 2018 indicates a significant decline. This is shown by the following information:

A discussion with Nandini Sharma, the controller, brings to light two possible explanations. She informs you that the industry gross profit percent in the retail drug industry declined fairly steadily for three years, which accounts for part of the decline. A second factor was the declining percent of the total volume resulting from the pharmacy part of the business. The pharmacy sales represent the most profitableportion of the business, yet the competition from discount drugstores prevents it from expanding as fast as the nondrug items such as magazines, candy, and many other items sold.Sharma feels strongly that these two factors are the cause of the decline.The following additional information is obtained from independent sources and the client?s records as a means of investigating the controller?s explanations:

REQUIREDa. Evaluate the explanation provided by Sharma. Show calculations to support your conclusions.

b. Which specific aspects of the client?s financial statements require intensive investigation in this audit?

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2018 2017 2016 2015 Sales (thousands) CGS (thousands) $14 211 $12 916 8 266 $11 462 7 313 $10 351 9 223 6 573 $ 3 778 36.5 $ 4 650 $ 4 149 36.2 36.0 Gross margin $ 4 988 35.1 Percent Jones Drugs ($ in thousands) Industry Gross Profit Percent Drug Cost Cost of Goods Nondrug for Retailers of Drugs and Related Drug Nondrug of Goods Sales Sales Sold Sold Products 2018 $5 126 $9 085 $3 045 $6 178 32.7 2017 5 051 7 865 2919 5 347 32.9 2016 4 821 6 641 2 791 4 522 33.0 2015 4 619 5 732 2 665 3 908 33.2