In a 2-3 page paper, complete the case below and submit toinstructor. Review the income statement for Uden Supply Company andanswer the following:
Describe the purpose of analytical procedures performed in theplanning stage of the audit.
Uden Supply has projected its 2004 gross profit at 31% of salesdespite expectation for some shrinkage in margins. On the basis ofUden's operating performance in years 2001 - 2003 project your bestguess for 2004. Project 2004 based on the incremental changes foreach line item over the last three years.
Uden’s unaudited financial statements for the current year show a31 percent gross profit rate. Assuming that this represents amisstatement from the amount that you developed as an expectation,calculate the estimated effect of this misstatement on net incomebefore taxes for 20X4.
Indicate whether you believe that the difference calculated in part(c) is material. Explain your answer. (50-100 words).
Comparative income statement information for Uden Supply Company ispresented in the accompanying table.
UDEN SUPPLY COMPANY
Comparative Income Statement
Years Ended December 20X1, 20X2, and 20X3
(Thousands)
20X1 Audited 20X2 Audited 20X3 Audited 20X4 Expected
Sales 8,700 9,400 10,100
Cost of goods sold 6,000 6,500 7,000
Gross profit 2,700 2,900 3,100
Sales Commissions 610 660 710
Advertising 175 190 202
Salaries 1,061 1,082 1,103
Payroll taxes 184 192 199
Employee benefits 167 174 181
Rent 60 61 62
Depreciation 60 63 66
Supplies 26 28 30
Utilities 21 22 23
Legal and accounting 34 37 40
Miscellaneous 12 13 14
Interest expense 210 228 240
Net income before taxes 80 150 230
Incomes taxes 18 33 50
Net income 62 117 180
