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.

b. Swells 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.