Question

Scott Duffney, CPA, has randomly selected and audited a sample of 100 of Will-Mart’s accounts receivable. Will-Mart has 3,000 accounts receivable accounts with a total book value of $3,650,000. Duffney has determined that the account’s tolerable misstatement is $900,000.

His sample results are as follows:

Average audited value	$	1,210
Average book value		1,218

Required:

Calculate the accounts receivable estimated audited value and projected misstatement using the: (Do not round your intermediate calculations and round your final answer to nearest whole dollar.

Estimated Audited Value Projected Misstatementa.

Mean-per-unit method.

b.Ratio method.

c.Difference method.

Answer 1

A)

Mean per unit method:

Estimated audit value = 1210 × 3000 accounts = $3630000

Projected misstatement = Client's book value - Estimated audited value

= $3650000-$3630000

= $20000

B) ratio method:

Projected misstatement = (sample net misstatement / Book value of sample) × Population book value

Sample net misstatement = 100 × (1210-1218) = -$800

Book value of sample = 100 × 1218 = $121800

Projected misstatement = -800/121800 × 3650000 = $23974 overstatement

Estimated audited value = book.value - Projected overstatement

= $3650000 - $23974

= $3626026

3) difference method:

Projected misstatement = (sample net misstatement / Sample items)× Population items

= (-800/100) × 3000

= $24000 overstatement

Estimated audited value = book value - projected misstatement

= $3650000 - $24000

= $3626000