You are an audit assistant with a public accounting firm in Mayfield, Ontario. You have been assigned to audit the Accounts Receivable (AR) for Mayfield Residential Hotel (MRH), a hotel located in your town. MRH offers accommodation on a nightly basis or for long-term stays. Recently, due to the COVID-19 crisis, many health care workers have been transferred temporarily from other cities and have been accommodated by their employer companies in the MRH. MRH has credit arrangement with a number of different companies for accommodating employees on temporary transfers to Mayfield. The aged AR listing for MRH as of December 31, 2020 is attached (see below). During the planning meeting, the audit manager for this audit informed the team that performance materiality is $10,000 and overall materiality is $15,000. The controls over AR were assessed to be high control risk in the previous year's audit and since there were no changes this year the audit manager plans to use that assessment again this year. No misstatements were found in the audit of AR last year. The audit manager has asked you to review the aged AR listing and select a sample of customer balances to confirm that will cover approximately 25% of the total balance. Mayfield Residential Hotel Inc Accounts Receivable Aging List As at December 31, 2020 CUSTOMER NAME Alberta Inc. Bo Co. Limited D & Co. Ltd. Dimas Inc. Fang Limited Gauva Inc. Gavinelle Ltd. Imajimo Inc. loulian Ltd. Jae Kyo Corp. Jonat Inc. Kareng Inc. Kavitav Limited Kelvia LLP Lilune Inc. Lindsay's Limited Marwa Inc. Stephenson & Co. Sucherro Corp Michaels & Michaels Ming Inc. Nathar Ltd. Orlando Corp. Prana LLP Rajiv Inc. Renee Limited Uyen Inc. Sydney Corp. Zoumatra Inc. CUSTOMER NUMBER 38322 38326 38329 38330 38331 38332 38333 38334 38335 38338 38348 38350 38359 38360 38361 38364 38366 38367 38369 38374 38376 38381 38385 38391 38392 38393 38396 38397 38398 TOTAL RECEIVABLE 2194.99 2636.64 657.05 1148.47 1537.27 576.55 1690.19 1221.37 1516.98 1090.89 2105.28 316.75 1866.90 2804.27 4027.27 1384.00 978.94 2123.90 1601.95 1333.62 0.00 0.00 4698.62 2938.42 6243.36 2143.30 445.36 1104.37 0.00 50386.71 CURRENT 0-30DAYS 31-60DAYS 1695.02 2074.05 554.07 1387.42 243.21 1391.86 323.81 423.42 579.60 668.95 166.08 872.29 1834.07 4027.27 331.23 1334.95 1601.95 192.24 2613.87 314.88 5977.93 720.06 288.77 29617.00 211.27 562.59 102.98 149.85 203.49 94.24 783.56 445.55 140.22 304.76 364.99 788.95 353.59 1914.95 75.05 265.43 634.46 445.36 178.60 8019.89 61-90DAYS 91-120DAYS 120+DAYS 122.17 166.53 129.85 204.09 897.56 310.00 665.44 94.24 786.67 169.80 344.59 3602 24 511.29 150.67 94.24 788.95 637.00 2348.68 1148.47 990.78 854.39 1384.00 94.24 1.12 1414.95 788.78 6676.73 Required: a) Select a sample (using judgmental sampling) of customer balances for confirmation from the aged December 31 2020 AR listing. Explain the reasons you have for selecting these items. b) Assume the total sample you selected was $13,500 and the confirmations result in a total misstatement of $4,400 (an overstatement). i) What is the best estimate of the total misstatement in accounts receivable? (show your calculation) ii) What action would you take based on your results in i) and why?