Part 3: Use the information below to perform analytical procedures on ALL of Waren’s income statement accounts. While there is some flexibility in how you can develop expectations for EACH account, you must use each of the three primary methods discussed in class (trends, ratios, and reasonableness) at least once in your analysis. Make sure to highlight any discrepancies you feel are material and warrant further investigation. Select from your analyses one account you feel deviates materially from expectations and investigate the discrepancy appropriately. For your investigation, I play the role of Ray Kramer, so you should direct your questions to me—in my office—as part of your investigation. Once you have an explanation, describe some substantive evidence you could gather to test it. Use Excel to complete your analyses. In all cases, make sure you clearly show how you develop your expectations. Also, make sure you clearly and adequately document your investigation. Additional information that might be useful includes the following: 1. Waren sold 19,350 items this year (net of returns). They sold 19,610 items last year (net of returns). 2. Jim Adams worked 2100 hours of regular time this year and 194 hours of overtime. Nancy Ford worked 383 hours of regular time this year and 6 hours of overtime. 3. The average effective tax rate in the industry is 21%. 4. The average market interest rate on CDs during the year was 5%. _____________________________________________________________________________ Waren Sports Supply Income Statement Year ended December 31, 2012 Revenue: Sales 1,610,450 Less: Sales Returns & Allowances 61,225 Sales Discounts Taken 16,002 Net Sales 1,533,223 Cost of Goods Sold 1,141,100 Gross Margin 392,123 Operating Expenses: Rent expense 55,800 Advertising expense 26,229 Office Supplies expense 5,644 Depreciation expense 33,821 Wages and salaries 138,400 Payroll taxes 11,300 Bad debt expense 3,833 Other operating expense 28,174 Total Operating Expenses 303,201 Operating Income 88,922 Other Income and Expenses 0 Income Before Taxes 88,922 Income Tax Expense 18,762 Net Income 70,160 2013 Income Statement REVENUE Sales $1,588,571.00 Less: Sales returns and allowances 61,111.00 Sales discounts taken 15,405.82 Net sales 1,509,054.18 COST OF GOODS SOLD Beginning inventory 101,681.00 Net purchases 1,096,859.60 Freight-in 24,642.69 Goods available for sale 1,223,181.29 Less: Ending inventory 198,296.00 Cost of goods sold 1,021,703.04 GROSS MARGIN 487,351.14 OPERATING EXPENSES Rent expense 57,600.00 Advertising expense 21,905.00 Office supplies expense 5,621.45 Depreciation expense 35,109.50 Wages and salaries 141,563.97 Payroll taxes 11,568.80 Bad debt expense 3373.31 Other operating expense 29,287.75 Total operating expenses 306,030.78 Operating income 148,138.11 OTHER INCOME – Miscellaneous income 825.00 OTHER EXPENSE – Interest expense 197.26 INCOME BEFORE TAXES 181,320.36 FEDERAL INCOME TAXES 51,741.50 NET INCOME 129,578.86 I have no idea how to do this. I need help quickly.