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: UDEN SUPPLY COMPANY Comparative Income Statements Years Ended December 20X1, 20X2, and 20X3 (Thousands) 20X1 20X3 20X4 Audited Audited Audited Expected Sales $ 8,800 $9,800 $ 10,800 Cost of goods sold 5,720 1. Based on economic conditions, she believes that the increase in sales for the current year should approximate the historical trend. 7,668 3.080 3,132 2. Based on her knowledge of industry trends, she believes that the gross profit 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 3 percent from that in 20X3. Gross profit Sales commissions Advertising Salaries Payroll taxes Employee benefits Rent Depreciation Utilities Legal and accounting Miscellaneous Interest expense 700 220 1,106 202 194 194 79 78 07 87 M 44 39 61 21 255 Du 34*3*3*3*2385 525 648 108 1.154 226 216 oo 80 02 93 48 48 14 41 67 23 285 4. Based on a review of the general ledger, she determined that average depreciable assets have increased by 10 percent. Supplies 5. Based on her knowledge of economic conditions, she is aware that the effective interest rate on the company's line of credit for 20X4 was approximately 10 percent. The average outstanding balance of the line of credit is $2,750,000. This line of credit is the company's only interest-bearing debt. Net income before taxes Income taxes 73 16 143 31 Net income $ 57 $ 112 6. 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 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.) 11,800 11,800 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 Net income before taxes Income taxes Net income $ 11,800 GA 11,800 c. Uden's unaudited financial statements for the current year show a 33 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. (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.) Expected misstatement 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: UDEN SUPPLY COMPANY Comparative Income Statements Years Ended December 20X1, 20X2, and 20X3 (Thousands) 20X1 20X3 20X4 Audited Audited Audited Expected Sales $ 8,800 $9,800 $ 10,800 Cost of goods sold 5,720 1. Based on economic conditions, she believes that the increase in sales for the current year should approximate the historical trend. 7,668 3.080 3,132 2. Based on her knowledge of industry trends, she believes that the gross profit 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 3 percent from that in 20X3. Gross profit Sales commissions Advertising Salaries Payroll taxes Employee benefits Rent Depreciation Utilities Legal and accounting Miscellaneous Interest expense 700 220 1,106 202 194 194 79 78 07 87 M 44 39 61 21 255 Du 34*3*3*3*2385 525 648 108 1.154 226 216 oo 80 02 93 48 48 14 41 67 23 285 4. Based on a review of the general ledger, she determined that average depreciable assets have increased by 10 percent. Supplies 5. Based on her knowledge of economic conditions, she is aware that the effective interest rate on the company's line of credit for 20X4 was approximately 10 percent. The average outstanding balance of the line of credit is $2,750,000. This line of credit is the company's only interest-bearing debt. Net income before taxes Income taxes 73 16 143 31 Net income $ 57 $ 112 6. 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 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.) 11,800 11,800 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 Net income before taxes Income taxes Net income $ 11,800 GA 11,800 c. Uden's unaudited financial statements for the current year show a 33 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. (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.) Expected misstatement