Marilyn Terrill is the senior auditor for the audit of Uden Supply Company for the year ended December $31,20$X$4.$ In planning the audit,

Marilyn is attempting to develop expectations for planning analytical procedures based on the financial information for prior years and

her knowledge of the business and the industry, including these:

Based on economic conditions, she believes that the increase in sales for the current year should approximate the historical trend in

terms of actual dollar increases.

Based on her knowledge of industry trends, she believes that the gross profit percentage for $204$ should be about $2$ percent less

than the percentage for $203.$

Based on her knowledge of regulations, she is aware that the effective tax rate for the company for $204$ has been reduced by $5$

percent from that in $20$X$3.$

Based on her knowledge of economic conditions, she is aware that the effective interest rate on the company's line of credit for

$204$ was approximately $12$ percent. The average outstanding balance of the line of credit is $$4,400,000.$ This line of credit is the

company's only interest$-$bearing debt.

Based on her discussions with management and her knowledge of the industry, she believes that the amount of other expenses

should be consistent with the trends from prior years.

Comparative income statement information for Uden Supply Company is presented in the below table.

Required:

b$.$ Determine the expected amounts for $204$ for each of the income statement items. $($Round gross profit ratio and income taxes

ratio to nearest four decimal places. Round other ratios to nearest two decimal places. Round all other intermediate computations

to the nearest whole value. Enter your answers in thousands.$)$

$\backslash$table$[[$UDEN SUPPLY COMPANY$],[$Comparative Income Statements$],[$Years Ended December $20$X$1,20$X$2,$ and $20$X$3],[($Thousands$)],[,\backslash$table$[[20\backslash$times $1],[$Audited$]],\backslash$table$[[20\backslash$times $2],[$Audited$]],\backslash$table$[[20\backslash$times $3],[$Audited$]],20$X$4$ Expected$],[$Sales$,15,000,15,600,16,200,16,800$frown$],[$Cost of goods sold,$10,350,10,770,11,210,11,962/],[$Gross profit,$4,650,4,830,4,990,4,838],[$Sales commissions,$1,050,1,090,1,130,1,170\backslash$times $],[$Advertising$,300,310,320,325\backslash$times $],[$Salaries$,1,166,1,208,1,250,1,292$sub$],[$Payroll taxes,$205,219,233,247$vv$],[$Employee benefits,$188,202,216,230$vv$],[$Rent$,81,83,85,87$vv$],[$Depreciation$,81,83,85,87],[$Supplies$,47,49,51,53$vv$],[$Utilities$,42,44,46,48$vv$],[$Legal and accounting,$55,57,59,61$vv$],[$Miscellaneous$,33,35,37,39]]$

c$.$ Uden's unaudited financial statements for the current year show a $30\mathrm{.}80$ percent gross profit rate. Assuming that this represents a

misstatement from the amount that you developed as an expectation, calculate the estimated effect of this misstatement on net

income before taxes for $20$X$4.($Enter your answers in thousands.$)$

Answer is complete but not entirely correct.Choose the five most important variances that do not meet the expected range and explain the auditing strategies and techniques $($i$.$e$.,$ sampling or

testing$)$ you would use to determine why.