Your comparison of the gross margin percent for Jones Drugs for the year 2013 through 2016 indicates a significant decline. This is shown by the following information:

	2016	2015	2014	2013
Sales (thousands)	$14,211	$12,916	$11,462	$10,351
CGS (thousands)	9,223	8,266	7,313	6,573
Gross Margin	$4,988	$4,650	$4,149	$3,778
Percent	35.1	36.0	36.2	36.5

A discussion with Marilyn Adadms, the controller, brings to light two possible explanations. She informs you that the industry gross profit percent in the retail drug industry declined fairly steadily for three years, which accounts for part of the decline. A second factor was the declining percent of the total volume resulting from the pharmacy part of the business. The pharmacy sales represent the most profitable portion of the business, yet the competition from discount drugstores prevent it from expanding as fast as the nondrug items such as magazines, candy, and many other itmes sold. Adams feels strongly that these two factors are the cause of the decline.

The following additional is obtained from independent sources and the client's records as a means of investigating the controller's explanations:

Jones Drugs ($ in thousands)

	Drug Sales	Nondrug Sales	Drug Cost of Goods Sold	Nondrug Cost of Goods Sold	Industry Gross Profit Percent for Retailers of Drugs and Related Products
2016	$5,126	$9,085	$3,045	$6,178	32.7
2015	$5,051	$7,865	$2,919	$5,347	32.9
2014	$4,821	$6,641	$2,791	$4,522	33.0
2013	$4,619	$5,732	$2,665	$3,908	33.2

A. Evaluate the explanation provided by Adams. Show calculations to support your conclusions.

B. Which specific aspects of the client's financial statements require intensive investigation in this audit?