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 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 v line of credit for 20X4 was approximately 12 percent. The average outstanding balance of the line of credit is $4,200,000. 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. UDEN SUPPLY COMPANY Comparative Income Statements Years Ended December 20x120x2, and ex (Thousands) 2exi zex2 20x3 20x4 Audited Audited Audited Expected Sales 14,400 Cost of goods sold 15,900 17,400 9.940 10,980 12040 Gross profit 4,460 4.920 Sales commissions 5,360 1,010 1, 110 1.220 Advertising 288 320 35e Salaries 1.156 1,196 1,236 Payroll taxes 203 215 227 Employee benefits 186 216 Rent 79 39 Depreciation 79 Supplies 89 45 Utilities 40 Legal and accounting Miscellaneous 31 Interest expense 438 Net income before taxes 852 Income taxes 192 Net income 660 108 34 84 50 45 58 36 SA 456 1,068 24e 823 se 63 41 468 1,262 284 978 UDEN SUPPLY COMPANY Comparative Income Statements Year Ended December 20X4 (Thousands Sales $ 18.900 Coat of goods mold 13.120 Gross profit 5.700 Sales commissions 1.220 Advertising Salarios 1.276 Payroll taxes 242 Employee benefits 2221 Rent 04 Depreciation 94 Supplies 60 Utilities 55 Legal and accounting Miscellaneous 46 interest expense Not income before taxe Income taxes Not incomo O 68