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9-42. Smith, Inc.

Rachel Robertson wishes to use mean-per-unit sampling to evaluate the reasonableness of the book value of the accounts receivable of Smith, Inc. Smith has 10,000 receivable accounts with a total book value of $1,500,000. Robertson estimates the populations standard deviation to be equal to $25. After examining the overall audit plan, the auditors believe that the accounts tolerable misstatement is $60,000, and that a risk of incorrect rejection of 5 percent and a risk of incorrect acceptance of 10 percent are appropriate.

Required:

a. Calculate the required sample size.

b. Assuming the following results:

Book value of items in sample = $149

Average audited value of items in sample = $146

Standard deviation of sample = $28

use the mean-per-unit method to:

(1) Calculate the point estimate of the accounts audited value.

(2) Calculate the projected misstatement for the population.

(3) Calculate the adjusted allowance for sampling risk.

(4) State the auditors conclusion in this situation (accept or reject).

Use the following replies for the above questionsreplies may be used once, more than once, or not at all. In all cases, select the reply closest to your answer.

	Replies
Sample size (a) 14 accounts. 112 accounts 183 accounts 263 accounts Other replies for (b) $549 $30,000 $30,201 $33,506 $34,602	$40,000 $1,360,423 $1,460,000 $1,469,799 $1,470,000 $1,530,000 $1,530,201 Accept populationconclude the risk that it is materially misstated is appropriately low. Reject populationconclude the risk that it is materially misstated is too high.

9-43. Smith Company: Ratio and Difference Estimation

Note: This problem uses the information presented in the previous question and extends the analysis to ratio and difference estimation.

Use the replies presented in the preceding problem for this problem.

a. Use the ratio method to calculate:

(1) Projected misstatement.

(2) Estimated total audited value.

b. Use the difference estimation method to calculate:

(1) Projected misstatement.

(2) Estimated total audited value