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: Based on economic conditions, she believes that the increase in sales for the current year should approximate the historical trend in terms of actual dollar increases. 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. 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. Based on her knowledge of economic conditions, she is aware that the effective interest rate on the company's line of credit for 20X4 was approximately 12 percent. The average outstanding balance of the line of credit is $2,300,000. This line of credit is the company's only interest-bearing debt. 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.
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: Based on economic conditions, she believes that the increase in sales for the current year should approximate the historical trend in terms of actual dollar increases. 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. 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. Based on her knowledge of economic conditions, she is aware that the effective interest rate on the company's line of credit for 20X4 was approximately 12 percent. The average outstanding balance of the line of credit is $2,300,000. This line of credit is the company's only interest-bearing debt. 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.
Auditing: A Risk Based-Approach (MindTap Course List)
11th Edition
ISBN:9781337619455
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Chapter9: Auditing The Revenue Cycle.
Section: Chapter Questions
Problem 20CYBK
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Transcribed Image Text: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:
Based on economic conditions, she believes that the increase in sales for the current year should approximate the
historical trend in terms of actual dollar increases.
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.
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.
Based on her knowledge of economic conditions, she is aware that the effective interest rate on the company's line of
credit for 20X4 was approximately 12 percent. The average outstanding balance of the line of credit is $2,300,000. This
line of credit is the company's only interest-bearing debt.
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.
Transcribed Image Text:Sales
Cost of goods sold
Gross profit
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
UDEN SUPPLY COMPANY
Comparative Income Statements
Years Ended December 20X1, 20X2, and 20X3
(Thousands)
20X1 Audited
8,700
6,000
2,700
610
175
1,061
184
167
60
60
26
21
34
12
210
80
18
62
20X2 Audited
9,400
6,500
2,900
660
190
1,082
192
174
61
63
22
37
13
228
150
33
117
20X3 Audited
10,100
7,000
3,100
710
202
1,103
199
181
62
66
20X4 Expected
30
23
40
14
240
230
50
180 $
0
0
0
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