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 $3,850,000. Duffney has determined that the account’s tolerable misstatement is $1,100,000.

His sample results are as follows:

Average audited value	$	1,280
Average book value		1,286

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 Misstatement a. Mean-per-unit method. b. Ratio method. c. Difference method.

Answer 1

The answer is :

(a) Mean - per -unit -method :

Estimated audited value : $1,280 * 3000 = $38,40,000

Projected Misstatement : $38,50,000 - $38,40,000 = $10,000

(b) Ratio Method

Sample net misstatement : 100 * ($1280 - $1286) = - $600

Projected Misstaement : $600 /(1286 * 100) * $38,50,000 = $17,963

Estimated Audited Value = $38,50,000 - $17,963 = $38,32,037

(c) Differance Method

Projected Misstaement : $600/100 * 3000 = $18,000

Estimated Audited Value = $38,50,000 - $18,000 = $38,32,000

Explanation

(a) Mean - per - unit - method

The mean - per - unit - method estimates the total value of the population by using the sample audited mean as an estimate of the true population mean, and extending this estimated population mean by the number of items in population.

(b) Ratio Method :

The projected Misstatement using the ratio method is calculated as :

Absolute value of sample net misstatement / Book value of sample * Population Book Value

Estimated Audited Value : Book Value - Projected Misstatement

(c) Differeance Method:

The projected misstaement using differance estimation would be calculated as :

Absolute value of Sample net misstatement / Sample Items * Population Items

Estimated audited Value : Book Value - Projected Misstatement