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13-27 (PPS sampling) You decide to use statistical sampling to test the reasonableness of the recorded book value of the Key West Company's accounts...

13-27 (PPS sampling) You decide to use statistical sampling to test the reasonableness of the
recorded book value of the Key West Company’s accounts receivable. Because the company’s
internal control procedures over accounts receivable have been evaluated by you as
excellent and you believe few misstatements will be found, you decide to use probabilityproportional-
to-size sampling. The company has 4,000 customer accounts with a total book
value of $3,000,000. You decide $150,000 is the maximum tolerable misstatement and anticipate
that there may be $30,000 of misstatement in the population. You wish to limit the risk
of incorrect acceptance to 10%. It is your intention to seek positive confirmation of accounts
included in your sample and to apply alternative procedures to accounts for which no reply
is received.
Required
a. Compute the sample size.

SAMPLE ITEM BOOK VALUE AUDIT VALUE
1 $800 $0
2 1,500 1,350
3 13,000 0
4 15,000 14,250
13-27 (PPS sampling) You decide to use statistical sampling to test the reasonableness of the recorded book value of the Key West Company’s accounts receivable. Because the company’s internal control procedures over accounts receivable have been evaluated by you as excellent and you believe few misstatements will be found, you decide to use probabilityproportional- to-size sampling. The company has 4,000 customer accounts with a total book value of $3,000,000. You decide $150,000 is the maximum tolerable misstatement and anticipate that there may be $30,000 of misstatement in the population. You wish to limit the risk of incorrect acceptance to 10%. It is your intention to seek positive confirmation of accounts included in your sample and to apply alternative procedures to accounts for which no reply is received. Required a. Compute the sample size. SAMPLE ITEM       BOOK VALUE                AUDIT VALUE 1 $800 $0 2 1,500 1,350 3 13,000 0 4 15,000 14,250
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Accounting- 8274924.doc

13­27 (PPS sampling) You decide to use statistical sampling to test the reasonableness of the
recorded book value of the Key West Company’s accounts receivable. Because the company’s
internal...

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