Part 4: Use the information below to perform analytical procedures on all of Warens income statement accounts. While there is some flexibility in how you can develop expectations for each account, you must use each of the three primary methods discussed in class (trends, ratios, and reasonableness) at least once in your analysis. Make sure to highlight all discrepancies you feel are material and warrant further investigation. Select from your analyses one account you feel deviates materially from expectations and investigate the discrepancy appropriately. For your investigation, I play the role of Ray Kramer, so you should direct your questions to mein my officeas part of your investigation. Once you have an explanation, if it is reasonable (i.e., logical), describe the substantive evidence you could/should gather to test it.

Use Excel to complete your analyses. In all cases, make sure you clearly show how you develop your expectations. Also, make sure you clearly and adequately document your investigation.

Additional information that might be useful includes the following:

1. The health of the economy has not changed significantly during the last four years.

2. Waren sold 19,350 items this year (net of returns). They sold 19,610 items last year (net of returns).

3. Jim Adams worked 2100 hours of regular time this year and 194 hours of overtime. Nancy Ford worked 383 hours of regular time this year and 6 hours of overtime.

4. The average effective tax rate in the industry is 21%.

5. The average market interest rate on CDs during the year was 5%.

Waren Sports Supply Income Statement Years ended December 31, 2016
Revenue:
Sales		1,610,450
Less:
Sales Returns & Allowances		61,225
Sales Discounts Taken		16,002
Net Sales		1,533,223
Cost of Goods Sold		1,141,100
Gross Margin		392,123
Operating Expenses:
Rent expense		55,800
Advertising expense		26,229
Office Supplies expense		5,644
Depreciation expense		43,821
Wages and salaries		138,400
Payroll taxes		11,300
Bad debt expense		3,833
Other operating expense		28,174
Total Operating Expenses		313,201
Operating Income		78,922
Other Income and Expenses		0
Income Before Taxes		78,922
Income Tax Expense		18,762
Net Income		60,160