Answer:
a. The required sample size = 32
b. Projected misstatement = $18,826
c. The population will be accepted
Explanation:
a. The required sample size can be calculated as below:
Sample size = (population book value * reliability factor)/Tolerable misstatement
=($1000,000*1.6)/$50,000
Sample size = 32
b. For all the three accounts, the book value is $(100 +512 + 900) = $1,512
For all the three accounts, the audited value is $(900 + 600+ 520) = $1,210
Since the remainder of the sample has an average book and audited value of $501, then the total misstated accounts = $510 * 29 =$14529.
The total values (book and audited) are below:
Audited value ($) Book value ($)
3 accounts with misstatement 1,210 1,512
Other 29 accounts 14,529 14,529
Total 15,739 16,041
In the given sample, the misstatement is $(16,041 - 15, 739) =$ 302
The projected misstatement is calculated below :
Projected misstatement = (Sample net misstatement/Book value of sample) * Book value of population
Projected misstatement = ($302 */$16,041) * $1000,000
Projected misstatement = $18,826
c. Since the projected misstatement does not approach $50,000, it follows that the population will be accepted
