Question

The accounting firm of johnson and johnson has decided to design a nonstatistical sample to examine the accounts receivable balance of francisco fragrances, inc. , at october 31. as of october 31, there were 1,500 accounts receivable accounts with a balance of $5. 5 million. the accounts receivable population can be segregated into the following strata:
number and size

of accounts

book value

of stratum

10 accounts >

$ 50,000

$ 750,000

440 accounts >

$ 5,000

3,000,000

1,050 accounts <

$ 5,000

1,750,000

jonathan l. gren, senior-in-charge of the audit, has made the following decisions:_______.

1. based on the results of the tests of controls and risk assessment procedures, a low assessment is made for the risk of material misstatement. 2. the desired confidence level is moderate. 3. the tolerable misstatement allocated to accounts receivable is $155,000, and the expected misstatement is $55,000. 4. all the balances greater than $50,000 will be auditedrequired-using the nonstatistical sampling formula included in the textbook, compute the suggested sample size for this test using table 9-5. gren confirmed the accounts receivable accounts selected and noted the following results (round your answer to the nearest dollar amount. omit the "$" sign in your response. ):stratumbook value of stratumbook value of sampleaudit value of sampleamount of overstatement>$

50,000$ 750,000$ 750,000$ 746,500$ 3,500>$5,0003,000,000910,000894,75015,250>$5,0001,750,00070,00068,4501,550using ratio projection, what is the total projected misstatement? what conclusion should gren make concerning the accounts receivable balance?

Answer 1

The total projected misstatement of the firm is $92225 and it can be concluded that projected misstatement is more than the expected misstatement.

How to calculate the projected misstatement?

The total projected misstatement will be calculated thus:

= $3500 + ($15250/$910000 × 3000000) + (1550/70000 × 1750000

= $3500 + $50275 + $38750

= $92225

The projected misstatement is more than the expected misstatement. Therefore, there is an unacceptable risk that the true misstatement is more than the tolerable misstatement.

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