Listed below is the balance sheet portion of the 19X6 trial balance of Russ & Co. and additional information on some of the account balances. (Allowance accounts are ignored for convenience.) You are planning the audit of the 19X6 financial statements.

Additional Information 

a. Customer receivables range from balances of \($100\) to \($3,000,\) and the 10 highest balances total \($24,000.\) The next 15 largest balances total \($10,000.\)

b. Inventory is composed of three product groups, and the average cost of items in each group ranges from \($10\) to \($50.\)

c. Property and equipment had two additions this year of \($10,000\) and \($5,000\) and no retirements. 

d. Accounts payable balances range from \($500\) to \($3,000.\)

e. Long-term debt is a single loan from a venture capitalist with a lien on all assets and the owner of Russ & Co.'s personal guarantee. 

f Your CPA firm's guidance on financial statement materiality indicates that \($2,000\) would be material to Russ & Co.'s financial statements taken as a whole. g Since Russ & Co. is a small business that uses the accounting services department of your firm to prepare monthly and annual financial statements, you anticipate that the client will correct all errors you detect and only minor errors, if any, are expected.

Required 

Explain how you would use the financial statement materiality amount to plan the nature and extent of direct tests of balances of the balance sheet accounts in the 19X6 trial balance.

Transcribed Image Text:

Trial Balance Information Cash $10,000 Accounts receivable 36,000 Inventory 45,000 Property and equipment 90,000 Other assets 5,000 Accounts payable 31,000 Long-term debt 85,000 Owner's equity 70,000