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Ch8%20Solutions[1] - the difference is approximately...

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1 Chapter 8 - Audit Planning and Analytical Procedures Multiple Choice Questions From CPA Examinations 8-25 a. (3) b. (2) c. (4) 8-26 a. (1) b. (4) c. (2) 8-27 a. (4) b. (1) c. (2) d. (4) 8-33 a. Gross margin percentage for drug and nondrug sales is as follows: DRUGS NONDRUGS 2005 2004 2003 2002 40.6% 42.2% 42.1% 42.3% 32.0% 32.0% 31.9% 31.8% The explanation given by Adams is correct in part, but appears to be overstated. The gross margin percentage for nondrugs is approximately consistent. For drugs, the percent dropped significantly in the current year, far more than industry declines. The percent had been extremely stable before 2005. In dollars,
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Unformatted text preview: the difference is approximately $82,000 (42.2% - 40.6% x $5,126,000) which appears to be significant. Of course, the decline in Jones' prices may be greater than the industry due to exceptional competition. b. As the auditor, you cannot accept Adams' explanation if $82,000 is material. The decline in gross margin could be due to an understatement of drug inventory, a theft of drug inventory, or understated sales. Further investigation is required to determine if the decline is due to competitive factors or to a misstatement of income....
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