Question
The accounting firm of Johnson and Johnson has decided to design a non-statistical sample to price test the inventory of ABC Company as December 31st.
The accounting firm of Johnson and Johnson has decided to design a non-statistical sample to price test the inventory of ABC Company as December 31st. As of December 31st, there were 3,180 items included in the inventory listing with a balance of $7,220,000. The inventory population can be segregated into the following strata: Wendy Smith, senior-in-charge of the audit, has made the following decisions: - Based on the results of the tests of controls and risk assessment procedures, the company has elected not to rely on internal controls and the desired confidence level is high. - The tolerable misstatement allocated to accounts receivable is $175,000, and the expected misstatement is $75,000. - All the items greater than $70,000 will be audited. Required: (6 points) A. Using the nonstatistical sampling formula, compute the suggested sample size for this test. B. Provide two specific ways to reduce your sample size C. Smith tested the selected inventory items and noted the following results: Using ratio projection, what is the total projected misstatement? What conclusion should Smith make concerning the inventory balance?
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