Problem

W. Fire, CPA is examining the accounts receivable (which were recorded at $500,000) for TB...

W. Fire, CPA is examining the accounts receivable (which were recorded at $500,000) for TBB, Inc., using a monetary unit sampling application. Using a risk of incorrect acceptance of 5% and a tolerable misstatement of $50,000, Fire has determined a sample size of 100 items and found the following three misstatements

 

a. What sampling interval did Fire use?

b. Based on the preceding information, calculate the (1) actual misstatement, (2) projected misstatement, (3) incremental allowance for sampling risk, and (4) basic allowance for sampling risk.

c. What is the upper limit on misstatement?

d. Based on the preceding information, what would Fire’s conclusion be with respect to TBB’s accounts receivable balance?

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