Swell Computers manufactures desktop and laptop computers. The components of the financial statements are (1) income before taxes = $50,000, (2) total assets = $1 billion, and (3) total revenues = $3 billion.

a. Determine the preliminary judgment about materiality. Justify your decisions.

b. Swell's auditors set tolerable misstatement for inventory at $1.25 million. The year-end inventory balance totaled $4.5 million of which the auditors tested a sample of $1 million. Determine and discuss the fairness of inventory if $250,000 worth of misstatements were found within the testing sample.

c. During the course of the audit, Swell's CPA firm detected misstatements that resulted in an overstatement of net income by $1.5 million. Evaluate the audit findings. Justify your decisions.