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 $4,500,000. This line of credit is the companys only interest-bearing debt. Based on her discussions with management the advertising and sales commission percentages are expected to stay the same.

6. 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	15,300	16,000	16,700
Cost of goods sold	10,560	11,050	11,550
Gross profit	4,740	4,950	5,150
Sales commissions	1,070	1,120	1,170
Advertising	306	320	330
Salaries	1,171	1,214	1,257
Payroll taxes	206	221	236
Employee benefits	189	193	197
Rent	82	85	88
Depreciation	82	85	88
Supplies	48	51	54
Utilities	43	46	49
Legal and accounting	56	59	62
Miscellaneous	34	37	40
Interest expense	474	492	504
Net income before taxes	979	1,027	1,075
Income taxes	220	231	242
Net income	759	796	833

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	0
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	$0

c. Udens unaudited financial statements for the current year show a 30.84 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