Assume a company with the following balance sheet accounts:
Account | Amount | Account | Amount |
Cash | $10,000 | Long-term loans | $30,000 |
Fixed assets | 60,000 | M. Johnson, proprietor | 40,000 |
| $70,000 |
| $70,000 |
You are concerned only about overstatements of owner’s equity. Set tolerable misstatement for the three relevant accounts such that the preliminary judgment about materiality does not exceed $5,000. Justify your answer.
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