Problem

Y. Chang, CPA, performed a nonstatistical sampling plan to examine the inventory balances...

Y. Chang, CPA, performed a nonstatistical sampling plan to examine the inventory balances of PHD, Inc. In selecting the sample of 35 items, Chang used an expected misstatement of $20,000 and a tolerable misstatement of $32,000. The account balance consisted of 525 items totaling $600,000. The sample recorded value was $40,000, and the audited value was $38,000. What conclusion did Chang draw regarding the account balance?

A. Accept because the estimated misstatement is less than the tolerable misstatement.

B. Reject because the estimated misstatement is more than the expected misstatement.

C. Accept because the estimated misstatement is less than the expected misstatement.

D. Reject because the estimated misstatement is more than the tolerable misstatement.

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