The audit staff of Adams, Barnes & Co. (ABC), CPAs, reported the following audit findings in their audit of Keystone Computers & Networks (KCN), Inc.:

1. Unrecorded liabilities in the amount of \(\$ 6,440\) for purchases of inventory. These inventory items were counted and included in the year-end total.

2. Projected misstatement from confirmation of accounts receivable in the amount of \(\$ 2,042\) overstatement.

3. Projected misstatement from price tests of inventory of \(\$ 9,510\) overstatement.

4. The staff of \(\mathrm{ABC}\) believes that the amount of KCN's allowance for uncollectible accounts should be increased by \(\$ 5,000\).

In addition, the audit staff has decided that for evaluating a material misstatement of the financial statements the following guidelines should be used:

Current assets- \(\$ 50,000\)

Noncurrent assets- \(\$ 75,000\)

Current liabilities- \(\$ 50,000\)

Noncurrent liabilities- \(\$ 75,000\) Total owners' equity— \(\$ 100,000\)

Net income before taxes \(-\$ 65,000\)

Required:

a. Prepare a schedule modeled after the one on page 657 to be used to evaluate the above audit findings, assuming that \(\mathrm{KCN}\) 's marginal tax rate is 25 percent.

b. Decide whether the results indicate that there is a sufficiently low risk of material misstatement to justify ABC's audit opinion.