You are evaluating the results of a nonstatistical sample of 85 accounts receiva
ID: 2515342 • Letter: Y
Question
You are evaluating the results of a nonstatistical sample of 85 accounts receivable confirmations for the Midwayn Company. Information on the sample and population are included below. Tolerable misstatement for accounts receivable confirmation sampling is $ 160,000
Sample
Population
# of
Recorded
# of
Recorded
Stratum
Accounts
Value
Accounts
Value
1
> $75,000
8
$1,287,643
8
$1,287,643
2
$10,000 - $74,999
40
1,989,500
257
4,250,225
3
< $10,000
25
99,170
712
926,520
73
$3,376,313
977
$6,464,388
The confirmation responses were received without? exception, other than the following? items:
Acct.
Recorded
Confirmation
No.
Value
Response
Auditor Follow-up
147
$21,250
$19,940
Customer was charged the wrong price.
228
178,200
155,735
$22,465 shipment recorded on December 30th;
goods were not shipped until January 3rd.
278
5,895
3,395
Customer sent $2,500 payment on December 29th;
received on January 2nd.
497
72,652
0
$74,776 shipment made on December 30th;
goods were received by the customer on
January 2nd.
564
7,850
6,953
Customer received less than the full quantity ordered.
653
49,871
36,956
$12,915 shipment recorded on December 30th;
goods were not shipped until January 2nd.
830
3,165
0
$3,165 shipment recorded on December 30th;
goods were not shipped until January 3rd.
Requirements
a.
Evaluate each of the confirmation exceptions to determine whether they represent misstatements.
b.
Estimate the total amount of misstatement in the accounts receivable population. Ignore sampling risk in the calculation.
c.
Is the population? acceptable? If? not, indicate what? follow-up action(s) you consider appropriate in the circumstances.
Requirement a. Evaluate each of the confirmation exceptions to determine whether they represent misstatements.
Begin by calculating the amount of the? misstatement, if? any, for each account that was received with differences between the recorded value and confirmed response. Then calculate the total misstatements and select what type of misstatement occured for each misstatement.? (If there is no? misstatement, enter a? "0" in the? "Misstatement" column. Enter a description for each account? listed.)
Acct.
Recorded
Confirmation
No.
Value
Response
Misstatement
Description
147
$21,250
$19,940
228
178,200
155,735
278
5,895
3,395
497
72,652
0
564
7,850
6,953
653
49,871
36,956
830
3,165
0
Sample
Population
# of
Recorded
# of
Recorded
Stratum
Accounts
Value
Accounts
Value
1
> $75,000
8
$1,287,643
8
$1,287,643
2
$10,000 - $74,999
40
1,989,500
257
4,250,225
3
< $10,000
25
99,170
712
926,520
73
$3,376,313
977
$6,464,388
Explanation / Answer
a) Evaluation of each of the confirmation exceptions regarding whether they represent misstatements
Acct.
Recorded
Confirmation
No.
Value
Response
Misstatement
Description
147
$21,250
$19,940
$1310
Pricing Error
228
178,200
155,735
$22465
date cut off error
278
5,895
3,395
$ 0
differnce of timing error
497
72,652
0
$ 0
differnce of timing error
564
7,850
6,953
$897
amount of qunatity unreceived
653
49,871
36,956
$12915
cut off date error
830
3,165
0
$3165
cut off date error
b) Estimation of total amount of misstatements in accounts receivable population :
Projected misstatements for the above :
projected misstatement = sample misstatement x book value /sample value
c) yes, The population is acceptable.
As the total projected misstatements of $90,804 is less than the tolerable misstatements of $160,000.
Acct.
Recorded
Confirmation
No.
Value
Response
Misstatement
Description
147
$21,250
$19,940
$1310
Pricing Error
228
178,200
155,735
$22465
date cut off error
278
5,895
3,395
$ 0
differnce of timing error
497
72,652
0
$ 0
differnce of timing error
564
7,850
6,953
$897
amount of qunatity unreceived
653
49,871
36,956
$12915
cut off date error
830
3,165
0
$3165
cut off date error
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