Question

Sample Evaluations and Conclusions: In planning a sample for A/R, you use the following information: Risk...

  1. Sample Evaluations and Conclusions:

In planning a sample for A/R, you use the following information:

Risk of Incorrect Acceptance

Population Size

Tolerable Misstatement

Expected Misstatement

Actual

Sample Size

*

5%

$2,000,000

$100,000

$10,000

75

Confirmations were sent out and the following differences were noted:

Customer

Number

Amount

per Books

Amount

per Customer

Reason

13062

$ 36,321

$        18,161

Billed twice for the same order.

13672

$      986

$                 -  

Customer sent payment on 12/27. Payment was received on 1/4. Fiscal year-end is 12/31.

13235

$      109

$                82

Billed for wrong model.

13785

$   2,483

$           2,257

Failed to give appropriate discount.

Using the above information, give the following amounts:

Projected misstatement

Upper limit on misstatement

Allowance for sample risk

Show all your work!!

  1. Based on your evaluation in part b., are accounts receivables materially misstated? Why or why not?

Homework Answers

Answer #1

A)

S.No Customer Number Amount as per Books Amount as per Customer Mistatemnet
A 13062 $36,321 $18,161 $18,161
B 13672 $986 $0 $986
C 13235 $109 $82 $27
D 13785 $2,483 $2,257 $226
E Projected Mistatement $19,400

B)

S.No Particulars Amount ($)
A Pupulation Size $2,000,000
B Risk of Incorrect Acceptance 5%
C Upper Limit on Mistatements $100,000
D Expected Mistatement $10,000
E Actual Mistatement $19,400
F Sample size 75
G Risk of Incorrect Acceptance (Accounts) (B*F) 4
H Actual Accounts Reeivables got Mistated 4

As the actual misstatements are higher than expected misstatements accounts receivables are materially misstated.

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