Isaac, CPA, is auditing Fun Fitness Inc., a calendar-year corporation. He is performing analytical procedures relative to the sales account for Year 2. He also audited the consolidated financial statements for Fun Fitness in Year 1 and issued an unmodified opinion. Isaac has set materiality at $40,000, or 4 percent change for year-over-year comparisons. For each type of analytical procedure, consider the information in the exhibits and:

	Enter the auditor's calculation/expectation for Year 2. Round all dollar amounts to the nearest dollar and all percentages to the nearest tenth of a percent.
	Evaluate the reliability of data from which the expectation is developed. Select from the choices available. Selections may be used once, more than once, or not at all.
	Evaluate the significance of the difference for each analytical procedure. Select from the choices available. Selections may be used once, more than once, or not at all.
	The information in the Analytics Definitions exhibit must be used for all financial ratio calculations.

	A	B	C	D
1		Year 2	Year 1	Year-Over-Year Percentage Change
2	Gross margin percentage:
3	Reliability of data:
4	Evaluate the significance of difference:

	A	B	C	D
1		Year 2 Sales Expected	Year 2 Sales Actual	Dollar Difference
2	Expectation based on square footage and external industry data:		$1,506,900
3	Reliability of data:
4	Evaluate the significance of difference:

	A	B	C	D
1		Year 2 Sales Expected	Year 2 Sales Actual	Dollar Difference
2	Expectation based on relationship between sales and commission:		$1,506,900
3	Reliability of data:
4 Evaluate the significance of difference

Income statement

Fun Fitness Inc.
Income Statement
For the Years Ended December 31, Year 2, and December 31, Year 1
	Year 2	Year 1
Sales	$1,506,900	$1,411,500
Cost of sales	875,000	850,000
Commission expense	78,900	54,000
General and administrative expenses	55,000	40,000
Income (loss) from operations	498,000	467,500
Other revenues and gains:
Interest revenue	4,000	3,000
Other revenue	500	250
Other expenses and losses:
Interest expense	10,000	8,500
Income before income tax	492,500	462,250
Income tax expense	98,500	87,800
Net income	$394,000	$374,450

Disaggregate Sales Information

Fitness Center	Prior Year Sales (audited)	Current Year Sales	Dollar Change	Current Percent Change (%)	Square Feet (audited)
1	275,000	292,700	17,700	6.4%	2,800
2	305,500	333,700	28,200	9.2%	2,900
3	325,000	341,600	16,600	5.1%	3,150
4	240,800	253,800	13,000	5.4%	2,900
5	265,200	285,100	19,900	7.5%	2,800
Total	1,411,500	1,506,900	95,400	6.8%	14,550