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: 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 for 20X4 should be about 1 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. 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 10 percent. The average outstanding balance of the line of credit is $3,150,000. This line of credit is the companys only interest-bearing debt. 6. Based on her discussions with management and 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 $ 9,800 $ 10,400 $ 11,000 Cost of goods sold 6,370 7,280 7,810 Gross profit 3,430 3,120 3,190 Sales commissions 780 416 440 Advertising 260 104 110 Salaries 1,146 1,178 1,210 Payroll taxes 218 224 230 Employee benefits 218 223 228 Rent 94 97 100 Depreciation 111 116 121 Supplies 60 64 68 Utilities 55 58 61 Legal and accounting 85 90 95 Miscellaneous 29 32 35 Interest expense 295 313 325 Net income before taxes 79 205 167 Income taxes 18 45 36 Net income $ 61 $ 160 $ 131 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.) Loading... c. Udens unaudited financial statements for the current year show a 31 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. (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.) Loading... This is the last question in the assignment. To submit, use Alt + S. To access other questions, proceed to the question map button. Next Visit question map Question 20 of 20 Total 20 of 20 Prev 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: 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 for 20X4 should be about 1 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. 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 10 percent. The average outstanding balance of the line of credit is $3,150,000. This line of credit is the companys only interest-bearing debt. 6. Based on her discussions with management and 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 $ 9,800 $ 10,400 $ 11,000 Cost of goods sold 6,370 7,280 7,810 Gross profit 3,430 3,120 3,190 Sales commissions 780 416 440 Advertising 260 104 110 Salaries 1,146 1,178 1,210 Payroll taxes 218 224 230 Employee benefits 218 223 228 Rent 94 97 100 Depreciation 111 116 121 Supplies 60 64 68 Utilities 55 58 61 Legal and accounting 85 90 95 Miscellaneous 29 32 35 Interest expense 295 313 325 Net income before taxes 79 205 167 Income taxes 18 45 36 Net income $ 61 $ 160 $ 131 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.) Loading...

c. Udens unaudited financial statements for the current year show a 31 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. (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.) Loading...