$3-32$ Suppose that you are the auditor of a major retail client who has reported the fol$-$

lowing income before taxes $($IBT$)$ for the first two quarters of the year: $1$st quarter $=$

$$1,200,000$ and $2$ nd quarter $=$$$1,500,000.$ You are in the process of establishing

overall materiality for the client. Based on prior years, the client has a $10$ percent

decline in IBT from the $2$nd quarter to the $3$rd quarter. You also know that IBT in the

$4$ th quarter increases by $25$ percent over the $3$ rd quarter.

Required:

Determine the amount of overall materiality for the audit based on these preliminary

amounts.