Sharon Gallagher (audit manager), Josh Thomas (audit senior), and Suzie Pickering (audit staff) are discussing the audit of revenues for Cloud 9. They are finalizing their plans for substantive tests. They plan to send positive confirmations at two months prior to yearend, and they will use a service that allows for electronic submission of confirmations by customers.

The book value of gross accounts receivable is $71,622,804.

After discussion, the audit team sets tolerable misstatement at $3,000,000 and decide on a sample size of a 100 accounts to confirm

The audit team selects a sample with a total book value of $4,300,000 and perform the confirmation procedures.

You may assume that except for the instances noted below, you received confirmations from customers that showed no exceptions.

1.Determine the amount of misstatement for each customer listed below. If the situation is deemed not to result in a misstatement, then enter '0'

A.Customer No. 00030 disputed the price on stock number 11205, which was priced at $75 per item and should have been priced at $60 per item on 1200 items. Cloud 9 issued a credit memo for $18,000 on January 7, 2023. The book value of the receivable for Customer No. 00030 at December 31, 2022, was $130,500.

__________________________________

B.Customer No. 00158 with a receivable balance of $230,225 on December 31 disputed receivables in the amount of $30,500, as a shipment of shoes was not received until January 2, 2023. Further investigation showed that the customer ordered the goods on December 31, 2022, and they were not counted in inventory when the inventory was taken on that date. The freight carrier came by late in the day and picked up the goods, even though the warehouse was normally shut down for inventory on December 31, 2022. The goods were shipped FOB shipping point. The receivable was paid in full on January 29, 2022.

___________________________________

C.Customer No. 00651 disputed receivables in the amount of $150,750, as it had been paid on December 30, 2022. The check from Customer No. 00651 was received and deposited by Cloud 9 on January 3, 2022. The book value of the receivable for Customer No. 00651 at December 31, 2022, was $150,750.

_______________________________

D.Customer No. 00850 disputed the balance on the confirmation of $35,700 in its entirety. Further investigation showed that the balance was charged to the wrong customer. Goods were shipped to Customer No. 00580. On January 3, 2022, the error was discovered. A credit memo was issued to Customer No. 00850 and an invoice was sent to Customer No. 00580, which was paid in full on January 27, 2022.

_________________________________

E.No response was received from Customer No. 10141. Goods in the amount of $344,232 were shipped on November 1, 2022. Additional goods in the amount of $131,824 were shipped on December 12, 2022. The receivable balance was $476,056 at December 31, 2022. A review of the cash receipts journal showed that a check for $344,232 was deposited on January 24, 2022. Another check for $131,824 was received on February 1, 2023.

_______________________________________

F.Customer No. 21287 disputed receivables in the amount of $755 claiming that it did not receive a promised 1% discount associated with the first shipment to a new customer. The book value of the receivables for Customer No. 21287 at December 31, 2022 was $75,500. The customer subsequently paid $74,745 on January 29, 2022, and Cloud 9 issued a credit memo in the amount of $755.

________________________________________

2.Determine the total sample net misstatement

__________________________________________

3.Using the ratio method, determine the projected/ estimated total misstatement

_______________________________________________

4.Draw a conclusion about whether the existence assertion for accounts receivable is presented fairly at December 31, 2022.

Check or circle the correct answer

Fairly Stated

Misstated