Reference no: EM131268098
Doug Stevens, CPA, is interested in testing the fairness of the ending inventory balance during the audit of Morris Co. Doug has relatively little experience using statistical sampling methods and, quite frankly, doesn't like to turn anything over to random chance—especially the selection of items to test. Doug used a judgmental method of selecting items for testing. The method involves testing the inventory-item balances that he deems most risky or most likely to be misstated. Doug identified items to test based on size of balance, findings from prior years, age of inventory, description, and professional judgment.
He selected 26 items with a total book value of $720,000. In his “sample,” he found a combined $80,000 in overstatement errors. The book value of inventory on the entity's records is $1,090,000. Overall materiality for the engagement is $500,000. Doug's policy is to use 50 percent or less of overall materiality as tolerable misstatement for any one account.
Required:
a. What is your opinion of Doug's method of selecting his “sample”?
b. Evaluate Doug's results. Does he have sufficient evidence to conclude the balance is fairly stated?
|
Calculate amount of revenue-gross profit to be recognized
: In 2016, the Westgate Construction Company entered into a contract to construct a road for Santa Clara County for $10,000,000. The road was completed in 2018. Information related to the contract is as follows: 2016 2017 2018 Cost incurred during the ..
|
|
Sells variety of paper products-office supplies
: Supply Club, Inc., sells a variety of paper products, office supplies, and other products used by businesses and individual consumers. During July 2016 it started a loyalty program through which qualifying customers can accumulate points and redeem t..
|
|
Calculate the amount of interest expense
: On January 1, 2016, the Mason Manufacturing Company began construction of a building to be used as its office headquarters. The building was completed on September 30, 2017. What is the total cost of the building? Calculate the amount of interest exp..
|
|
Sufficient evidence to conclude the balance is fairly stated
: Doug Stevens, CPA, is interested in testing the fairness of the ending inventory balance during the audit of Morris Co. Doug has relatively little experience using statistical sampling methods and, quite frankly, doesn't like to turn anything over to..
|
|
What is the interest rate that will be paying
: What will be the balance on September 1, 2024 in a fund which is accumulated by making $20,000 annual deposits each September 1 beginning in 2017, with the last deposit being made on September 1, 2024? Charlie Corp. is purchasing new equipment with a..
|
|
Prepare separate entries for each transaction
: On June 10, Rebecca Company purchased $7,600 of merchandise from Clinton Company, FOB shipping point, terms 2/10, n/30. Rebecca pays the freight costs of $400 on June 11. Damaged goods totaling $300 are returned to Clinton for credit on June 12. Prep..
|
|
The internal rate of return
: The internal rate of return is:
|