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 $3,200,000. 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 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	11,400	11,900	12,400
Cost of goods sold	7,870	8,220	8,590
Gross profit	3,530	3,680	3,810
Sales commissions	800	830	870
Advertising	228	240	250
Salaries	1,106	1,136	1,166
Payroll taxes	193	206	219
Employee benefits	176	188	200
Rent	69	74	79
Depreciation	69	74	79
Supplies	35	40	45
Utilities	30	35	40
Legal and accounting	43	48	53
Miscellaneous	21	26	31
Interest expense	318	336	348
Net income before taxes	442	447	430
Income taxes	99	101	97
Net income	343	346	333

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 30.73 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.)

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 company's line of credit for 20X4 was approximately 12 percent. The average outstanding balance of the line of credit is $3,200,000. This line of credit is the company's 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 years. Comparative income statement information for Uden Supply Company is presented in the below table. 20X4 Expected UDEN SUPPLY COMPANY Comparative Income Statements Years Ended December 20x1, 20X2, and 20x3 (Thousands) 20x1 20x2 Audited Audited Sales 11,400 11,900 Cost of goods sold 7,870 8,220 Gross profit 3,530 3,680 Sales commissions 800 830 Advertising 228 240 Salaries 1,106 1,136 Payroll taxes 193 206 Employee benefits 176 188 Rent 69 74 Depreciation 69 74 Supplies 35 40 Utilities 30 35 Legal and accounting 43 48 Miscellaneous 21 26 Interest expense 318 336 Net income before taxes 442 447 Income taxes 99 101 Net income 343 346 20x3 Audited 12,400 8,590 3,810 870 250 1,166 219 200 79 79 45 40 53 31 348 439 97 333 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 Net income before taxes Income taxes Net income c. Uden's unaudited financial statements for the current year show a 30.73 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.) Expected misstatement