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The accounting firm of Johnson and Johnson has decided to design a nonstatistical sample to examine the accounts receivable balance of Francisco Fragrances, Inc., at October 31. As of October 31, there were 1,500 accounts receivable accounts with a balance of $5.5 million. The accounts receivable population can be segregated into the following strata: |
| Number and Size of Accounts |
Book Value of Stratum |
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| 10 accounts > | $ | 50,000 | $ | 750,000 |
| 440 accounts > | $ | 5,000 | 3,000,000 | |
| 1,050 accounts | $ | 5,000 | 1,750,000 | |
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| Jonathan L. Gren, senior in charge of the audit, has made the following decisions: |
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Based on the results of the tests of controls and risk assessment procedures, a low assessment is made for the risk of material misstatement. |
| ‘ | The desired confidence level is moderate. |
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The tolerable misstatement allocated to accounts receivable is $155,000, and the expected misstatement is $55,000. |
| ‘ | All the balances greater than $50,000 will be audited. |
| Required: |
| a. |
Using the nonstatistical sampling formula included in the textbook, compute the suggested sample size for this test using Table 9 5. |
| Sample Size |
| b. | Gren confirmed the accounts receivable accounts selected and noted the following results (Round your answer to the nearest dollar amount. Omit the “$” sign in your response.): |
| Stratum | Book Value of Stratum | Book Value of Sample | Audit Value of Sample | Amount of Overstatement | |||||
| >$ | 50,000 | $ | 750,000 | $ | 750,000 | $ | 746,500 | $ | 3,500 |
| >$ | 5,000 | 3,000,000 | 910,000 | 894,750 | 15,250 | ||||
| >$ | 5,000 | 1,750,000 | 70,000 | 68,450 | 1,550 | ||||
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| Using ratio projection, what is the total projected misstatement? |
| Total Projected Misstatement | $ |
