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Marilyn Terrill is the senior auditor for the audit of Uden Supply Company for the year ended December 31, 20X4. In planning the audit, Marilyn

Marilyn Terrill is the senior auditor for the audit of Uden Supply Company for the year ended December 31, 20X4. 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:

  1. Based on economic conditions, she believes that the increase in sales for the current year should approximate the historical trend.
  2. Based on her knowledge of industry trends, she believes that the gross profit percentage for 20X4 should be about 2 percent less than the percentage for 20X3.
  3. Based on her knowledge of regulations, she is aware that the effective tax rate for the company for 20X4 has been reduced by 5 percent from that in 20X3.
  4. Based on a review of the general ledger, she determined that average depreciable assets have increased by 10 percent. Purchases of equipment occurred relatively evenly throughout the year.
  5. Based on her knowledge of economic conditions, she is aware that the effective interest rate on the companys line of credit for 20X4 was approximately 12 percent. The average outstanding balance of the line of credit is $4,500,000. This line of credit is the companys only interest-bearing debt.
  6. Based on her discussions with management the advertising and sales commission percentages are expected to stay the same. Based on her knowledge of the industry, she believes that the amount of other expenses should be consistent with the trends from prior yearsimage text in transcribedimage text in transcribed

    c. Udens unaudited financial statements for the current year show a 30.84 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 20X4. (Enter your answers in thousands.

Comparative income statement inTormation Tor uden Suppiy Company is presentea in tne beiow tabie UDEN SUPPLY COMPANY Comparative Income Statements Years Ended December 20x1, 20X2, and 20X3 (Thousands) 20x1 Audited Audited Audited Expected 20X2 20X3 20x4 Sales Cost of goods sold 15,300 10,560 4,740 1,070 306 1,171 206 189 82 82 48 43 56 34 474 979 220 759 16,000 11,050 4,950 1,120 320 1,214 221 193 85 85 51 46 59 37 492 1,027 231 796 16,700 11,550 5,150 1,170 330 1,257 236 197 Gross profit Sales commissions Advertising Salaries Payroll taxes Employee benefits Rent Depreciation Supplies Utilities Legal and accounting Miscellaneous Interest expense 54 49 62 40 504 1,075 242 833 Net income before taxes Income taxes Net income Required: b. Determine the expected amounts for 20X4 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.) UDEN SUPPLY COMPANY Comparative Income Statements Years Ended December 20X4 (Thousands) Sales Cost of goods sold Gross profit Sales commissions Advertising Salaries Payroll taxes Employee benefits Rent Depreciation Supplies Utilities Legal and accounting Miscellaneous Interest expense income before taxes Income taxes Net income

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