Ch9 - EOC #13 Chapter 9 9-23 a. Using Table 8-5 with a...

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Unformatted text preview: EOC #13 Chapter 9 9-23 a. Using Table 8-5 with a desired confidence level of 95% (risk of incorrect acceptance = 5%); tolerable misstatement = 4% ($360,000 $9,000,000); expected misstatement = 1% ($90,000 $9,000,000); the sample size is equal to 156. The sampling interval is $57,692 ($9,000,000 156). Using ACL with a desired confidence level = 95%; population = $9,000,000; tolerable misstatement = $360,000; and expected misstatement = $90,000; the sample size is equal to 130 items. The sampling interval is $68,906.25. b. The upper misstatement limit is calculated as follows: Overstatement Errors Error Number Book Value Audit Value Tainting Factor 1 10,000 7,500 .25 2 9,000 6,000 .33 3 60,000 Not applicable, since the book value exceeds the sampling interval. 4 800 640 .20 Error Number Tainting Factor Sampling Interval Projected Misstatement (column 2 x 3) 95% Misstatement Factor or Increment (from Table 9- 3) Upper Misstatement Limit (column 2 x 3 x 5) Basic Precision 1.0 $57,692 NA 3.0 $173,076 2 .33 57,692 19,038 1.7 (4.7-3.0) 32,365 1 .25 57,692 14,423 1.5 (6.2-4.7) 21,635 4 .20 57,692 11,538 1.4 (7.6-6.2) 16,153 Add misstatements detected in logical units greater than the sampling interval: Error 3 NA 57,692 60,000 NA 60,000 Upper Misstatement Limit $303,229 NANot Applicable Since the UML ($303,229) is less than the tolerable misstatement ($360,000), Nancy Van Pelt can accept the inventory account as being fairly stated since there is only a 5 percent risk that the account contains a misstatement greater than $360,000....
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Ch9 - EOC #13 Chapter 9 9-23 a. Using Table 8-5 with a...

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