The accounting firm of Johnson and Johnson has decided to design a non-statistical 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
10 accounts > $ 50,000 ....... $ 750,000
440 accounts > $ 5,000 ........ 3,000,000
1,050 accounts < $ 5,000 ....... 1,750,000

Jonathan L. Gren, senior- in- charge of the audit, has made the following decisions:
• 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.
• 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.

a. Using the non-statistical sampling formula included in the textbook, compute the suggested sample size for this test.
b. Gren confirmed the accounts receivable accounts selected and noted the following results:

Using ratio projection, what is the total projected misstatement? What conclusion should Gren make concerning the accounts receivablebalance?

  • CreatedSeptember 22, 2014
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