Considering only the information in question 3-41 , the auditor can conclude the following regarding net income, assuming there were no other misstatements in the years identified or in the immediately preceding year:

a. Net income for the current year is not misstated by a material amount because none of the individual items are material.

b. Net income for the current year is materially misstated by $125,000.

c. Net income for the previous year is misstated by $55,000.

d. Net income for the current year is misstated by $5,000.

e. Answers a and d are correct.

f. Answers b and c are correct.

Data from Question 3-41

Assume the auditor sets these values during an audit: materiality for net income = \($100,000;\) individual materiality for the allowance for doubtful accounts = \($35,000;\) warranty liability = \($40,000.\) The following information is available regarding the auditor’s assessment of the likely misstatement in each of the account balances for this year and last year.

Transcribed Image Text:

Last Year This Year Allowance for Doubtful Accounts Overstated by $30,000 Understated by $25,000 Warranty Liability Overstated by $30,000 Understated by $40,000