Set two preliminary materiality dollar amounts for the Marco audit - one for the balance sheet and one for the income statement. Document how you calculated your materiality amounts and explain why you chose the approach you did. select the approach that you want and explain the approach that would be best for Marco.

Balance sheet

Current Assets 2018 2019 2018 % of Assets 2019 % of Assets % Change Cash and cash equivalents 22,045 $ 10,867 $ 1.94 0.79 (50.71) Money market funds 31,510 16,000 2.78 1.16 (49.22) Accounts receivable 301,713 425,755 26.60 30.83 41.11 Allowance for doubtful accounts (31,916) (33,779) (2.81) (2.45) (5.84) Inventory 307,701 503,091 27.13 36.43 63.50 Total Current Assets 631,053 921,934 55.65 66.76 46.09 Property and Equipment Plant 625,000 $ 625,000 $ 55.11 $ 45.26 $ Accumulated depreciation - plant (220,000) (240,000) (19.40) (17.38) (9.09) Equipment 120,000 120,000 10.58 8.69 Accumulated depreciation - equipment (72,000) (96,000) (6.35) (6.95) (33.33) Land 50,000 50,000 4.41 3.62 - Net Property and Equipment 503,000 459,000 44.35 33.24 (8.75) Total Assets 1,134,053 $ 1,380,934 $100 100 21.77 Current Liabilities Accounts payable 145,031 387,757 12.79 28.08 167.36 Payroll taxes payable 8,524 17,436 0.75 1.26 104.55 Income taxes payable 30,235 4,125 2.67 0.30 (86.36) Dividends payable 14,197 3,203 1.25 0.23 (77.44) Total Current Liabilities 197,987 412,521 17.46 29.87 108.36 Marco Appliances, Inc. Balance Sheets (Amounts in U.S. Dollars) Assets Liabilities and Stockholders' Equity Notes payable 215,000 185,000 18.96 13.40 (13.95) Total Long-term Liabilities 215,000 185,000 18.96 13.40 (13.95) Stockholders' Equity Capital stock 300,000 300,000 26.45 21.72 Paid-in capital 100,000 100,000 8.82 7.24 Retained earnings 321,066 383,413 28.31 27.76 19.42 Total Stockholders' Equity 721,066 783,413 63.58 56.73 8.65 Total Liabilities and Equity 1,134,053 $ 1,380,934 $ 100 100 21.77

Income statements

2018 2019 2018 2019 % Change Sales 2,756,561 $ 3,307,873 $ 100.00 100.00 20.00 Sales discounts (8,371) (9,207) (0.30) (0.28) (9.99) Sales returns (33,809) (51,559) (1.23) (1.56) (52.50) Bad debt expenses (27,565) (33,078) (1.00) (1.00) (20.00) Net Sales 2,686,816 3,214,029 97.47 97.16 19.62 Cost of goods sold 2,159,042 2,601,646 78.32 78.65 20.50 Gross margin 527,774 612,383 19.15 18.51 16.03 Salaries expense 259,287 $ 290,400 $ 9.41 8.78 12.00 Payroll tax expense 18,434 21,199 0.67 0.64 15.00 Fringe benefits 14,357 16,081 0.52 0.49 12.01 Rent 6,491 7,140 0.24 0.22 10.00 Utilities 21,943 25,673 0.80 0.78 17.00 Insurance 6,149 6,456 0.22 0.20 4.99 Supplies expense 3,067 3,650 0.11 0.11 19.01 Postage expense 974 1,140 0.04 0.03 17.04 Advertising expense 4,636 5,100 0.17 0.15 10.01 Professional fees 11,386 11,500 0.41 0.35 1.00 Miscellaneous 980 1,225 0.04 0.04 25.00 Purchase discounts lost 42,374 53,815 1.54 1.63 27.00 Interest expense 9,215 12,164 0.33 0.37 32.00 Depreciation expense 44,000 44,000 1.60 1.33 - Total operating expenses 443,293 499,543 16.08 15.10 12.69 Operating Income 84,481 112,840 3.06 3.41 33.57 Interest revenue 22,864 28,580 0.83 0.86 25.00 Income before income taxes 107,345 141,420 3.89 4.28 31.74 Income taxes 25,114 37,508 0.91 1.13 49.35 Net Income 82,231 $ 103,912 $ 2.98 3.14 26.37 Marco Appliances, Inc. Income Statements (Amounts in U.S. Dollars)Beginning retained earnings Net income $ 271,728 82,231 Dividends (32,892) Ending retained earnings 321,067 $ $ 321,067 103,912 (41,565) $ 383,414