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 $2,800,000. 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.

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. Udens unaudited financial statements for the current year show a 30.79 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

. Comparative inc me 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 10,200 11,400 Cost of goods sold 7,040 7,880 Gross profit 3,160 3,520 Sales commissions 710 800 Advertising 204 230 Salaries 1,086 1,112 Payroll taxes 189 198 Employee benefits 172 180 Rent 65 66 Depreciation 66 Supplies 31 32 Utilities 26 27 Legal and accounting 39 40 Miscellaneous 17 18 Interest expense 270 288 Net income before taxes 286 463 Income taxes 64. 104 Net income 222 359 nces 20x3 Audited 12,600 8,720 3,880 880 250 1,138 207 188 67 67 33 28 41 19 300 662 149 513 Required: b. Determine the expected amounts for 20X4 for each of the income statement items. (Round gross profit ratio an ratio to nearest four decimal places. Round other ratios to nearest two decimal places. Round all other intermec to the nearest whole value. Enter your answers in thousands.) UDEN SUPPLY COMPANY Comparative Income Statements Years Ended December 20X4