You are performing an audit of the financial statements of the Josh Music Co. as of December 31, year 1. Given your experience auditing this company in previous years, you have developed an expectation relative to each financial statement account for current- year activity. Based upon your review of preliminary financial statements, the actual results differ from your expectation for certain accounts and the CFO has provided an explanation for the difference. For the expectations, results, and subsequent client explanations in the table below, click on the cell in column D and select from the option list provided the appropriate audit response for each situation. An option may be used once, more than once, or not at all. A1 lock A 1 Auditor expectation Gross profit was 2% in the 2 prior year; similar profit 1. expected in year 1. B Actual result copy cut paste C D Client explanation Audit response Sold more expensive Gross profit was 12% in year products with a higher gross margin during the year. Increase in interest expense Interest expense stayed the Debt was refinanced 3 due to increase in debt. 5 Property, plant, and equipment acquisitions generally do not fluctuate from year to year. Shipping January orders in December is a common industry practice. same. Property, plant, and equipment acquisitions decreased significantly from the previous year. Sales have grown in each of the last three years. The industry historically has There have been excessive 6 few losses on retired assets. recurring losses on assets retired. during the year. No changes were made to property, plant, and equipment acquisition practices. Increased marketing efforts have positively influenced sales. Losses were due to increased asset usage.