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:

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 for 20X4 should be about 3 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 4 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.

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 10 percent. The average outstanding balance of the line of credit is $3,250,000. This line of credit is the companys only interest-bearing debt.

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.

UDEN SUPPLY COMPANY
Comparative Income Statements
Years Ended December 20X1, 20X2, and 20X3
(Thousands)
	20X1 Audited	20X2 Audited	20X3 Audited	20X4 Expected
Sales	$ 10,000	$ 11,100	$ 12,200
Cost of goods sold	6,500	7,770	8,662
Gross profit	3,500	3,330	3,538
Sales commissions	800	444	488
Advertising	270	222	244
Salaries	1,156	1,190	1,224
Payroll taxes	222	230	238
Employee benefits	224	231	238
Rent	98	100	102
Depreciation	117	121	125
Supplies	64	67	70
Utilities	59	61	63
Legal and accounting	91	95	99
Miscellaneous	31	33	35
Interest expense	305	323	335
Net income before taxes	63	213	277
Income taxes	14	47	60
Net income	$ 49	$ 166	$ 217

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.)

c.

Udens 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.)