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 $4,400,000. 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	15,000	15,600	16,200
Cost of goods sold	10,350	10,770	11,210
Gross profit	4,650	4,830	4,990
Sales commissions	1,050	1,090	1,130
Advertising	300	310	320
Salaries	1,166	1,208	1,250
Payroll taxes	205	219	233
Employee benefits	188	202	216
Rent	81	83	85
Depreciation	81	83	85
Supplies	47	49	51
Utilities	42	44	46
Legal and accounting	55	57	59
Miscellaneous	33	35	37
Interest expense	462	480	492
Net income before taxes	940	970	986
Income taxes	212	218	222
Net income	728	752	764

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 30.80 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.)

Thank you for your help.

UDEN SUPPLY COMPANY Comparative Income Statements Years Ended December 2004 (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 $ Expected misstatement UDEN SUPPLY COMPANY Comparative Income Statements Years Ended December 2004 (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 $ Expected misstatement