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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

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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 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 $2,800,000. 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 2ex3 Audited Audited Audited Sales 10,200 11,400 12,600 Cost of goods sold 2.840 7.880 8.720 Gross profit 3, 160 3,52e 3,880 Sales commissions 710 Bee 880 Advertising 204 230 25e Salaries 1,086 1,112 1, 138 Payroll taxes 189 198 207 Employee benefits 172 180 188 Rent 65 66 67 Depreciation 65 66 67 Supplies 31 32 33 Utilities 26 27 28 Legal and accounting 39 40 41 Next > 2 of 4 !!

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