16-48. The audit staff of Adams. Barnes & Co.(ABC), CPA.s, reported the following audit findings in their 20XS audit of Keystone Computers & Networks (KCN ). Inc.:

1 . Unrecorded liabilities in the amount of $6.440 for purchases of inventory. These inventory items were counted and included in their yearend total.

Projected misstatement from confirmation of accounts receivable in the amount of $2,042 understatement.

Projected misstatement from price tests of inventory of $9,510 overstatement.

The staff of ABC believes that the amount of KCN's allowance for uncollectible accounts should be increased by $5,000.

In addition, the audit staff has decided that for evaluating a material misstatement of the financial statements, the following guidelines should be used:

Current assets-$50,000 Noncurrent assets-$75,000 Current liabilities-$50,000 Noncurrent liabilities-$75,000 Total owners equity-$100,000 Net income before taxes-$65,000

a. Prepare a schedule modeled after Figure 16.5 on page 650 to be used to evaluate the above audit findings. assuming that KCN"s marginal tax rate is25 percent.

b. Decide whether the results indicate that there is a sufficiently low risk of material misstatement to justify ABC's audit opinion.