At December 31, 2011, EarthWear has $5,890,000 in a liability account labeled Reserve for returns. The footnotes to the financial statements contain the following policy: At the time of sale, the company provides a reserve equal to the gross profit on projected merchandise returns, based on prior returns experience. The client has indicated that returns for sales that are six months old are negligible, and gross profit percentage for the year is 42.5 percent. The client has also provided the following information on sales for the last six months of the year: Month Monthly Historical Sales (in 000s) Return Rate July $ 73,300 0.004 August 82,800 0.006 September 93,500 0.010 October 110,200 0.015 November 158,200 0.025 December 202,500 0.032 Required: a.Using the information given, develop an expectation for the reserve for returns account. Because the rate of return varies based on the time that has passed since the date of sale, do not use an average historical return rate. (Enter all answers in dollars (not thousands of dollars). Enter Gross Margin value in numbers and not percentages, rounded to 3 decimal places. Month Estimated Returns July $ August $ September $ October $ November $ December $ Total $ Gross Margin $ EarthWear's net income before taxes is $36 million (rounded). Assume that the auditors have decided that 5 percent of this benchmark is appropriate for planning materiality and allocate 50 percent of it as tolerable misstatement. b.Determine a tolerable difference for your analytical procedure. Tolerable difference $________________ c.Compare your expectation to the book value and determine if it is greater than tolerable difference Difference between book value and expectation is (less than/greater than) tolerable difference of $ _____________ d.Independent of your answer in part (c), what procedures should the auditor perform if the difference between the expectation and the book value is greater than tolerable misstatement