Biltrite Bicycles' recorded additions to factory equipment increased approximately 20% from 2019 to 2020. The recorded...

  

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Biltrite Bicycles' recorded additions to factory equipment increased approximately 20% from 2019 to 2020. The recorded additions for 2020 totaled $9,000,000. Although controls over factory equipment additions have been evaluated as effective in prior years, the financial statement audits have uncovered occasional instances in which items on vendor invoices that should have been expensed were capitalized. Since errors of this nature cause the factory equipment account to be overstated, you have been instructed to use probability-proportional-to-size (PPS) sampling to determine the extent to which such misstatements occurred during 2020. Your supervisor set the following sampling plan parameters. • . Risk of incorrect acceptance: Tolerable misstatement: Expected misstatement: 15% $450,000 (5% of recorded additions) $180,000 (2% of recorded additions) An Excel file, Case Assignment 10 Solution, containing the three workpapers listed below is posted on Blackboard in the Information Textbook Chapter 10 Case Assignment 10 folder. WP 11.3A: Sample Size and Sampling Interval Information. • WP 11.3B: Calculation of Projected Misstatement. WP 11.3C: Calculation of Upper Misstatement Limit. Download the Excel file and save it to an Excel file named "Your Name" - Case Assignment 10 Solution. Required: 1. Review the Sample Size and Sampling Interval Information on WP 11.3A. Insert your name and the date you reviewed the workpaper. 2. Finish the partially completed Calculation of Projected Misstatement on WP 11.38. Insert your name and the date you finished the workpaper. 3. Prepare a Calculation of Upper Misstatement Limit in good form on WP 11.3C. Show all supporting calculations Insert your name and the date you finished the workpaper. 4. Document your evaluation of the sampling results at the bottom of WP 11.3C. Include: a. Your statistical conclusion. b. The audit decision you reached based on your quantitative sampling results, including the reason for your decision. BILTRITE BICYCLES, INC. - December 31, 2020 3 PPS Sampling Analysis of Factory Equipment Additions 5 Recorded factory equipment additions Risk of incorrect acceptance 9 Tolerable misstatement 10 Expected misstatement. 11 Sample size used 12 Sampling interval 13 14 15 16 Sample Size and Sampling Interval Information 17 18 19 20 21 22 23 24 25 26 C $9,000,000 15.00% $450,000 (5% of recorded additions) $180,000 (2% of recorded additions) 87 (rounded up from 86 4) $103,000 (rounded down from $103,448) D WP 11.3A Name: Date: G BILTRITE BICYCLES, INC.-December 31, 2020 PPS Sampling Analysis of Factory Equipment Additions Invoice 7 Number 8372134 9 1779927 10 3668498 11 9873625 12 10224680 13 14 15 16 17 10 19 20 Vendor Laxey Machine Works, Ltd Gerald Equipment and Parts, Inc. Cradle Corporation Johnson's Welding and Machining Ladlow Parts and Repairs i Calculation of Projected Misstatement Misstatement (BV-AV Book Value $166,500 $2,300 508,530 $15,570 $28,700 $311,830 Audit Value $152,060 $0 $90,000 $15,000 $28.000 $201.000 Sample size and S Projected Minstatement Upper Misitarement Limit O $14,520 $2,360 $2,530 $570 $790 $20.770 Tainting % (BV-AV/BV WP 11.38 Name: Date: Sampling Interval Projected Misstatement Biltrite Bicycles' recorded additions to factory equipment increased approximately 20% from 2019 to 2020. The recorded additions for 2020 totaled $9,000,000. Although controls over factory equipment additions have been evaluated as effective in prior years, the financial statement audits have uncovered occasional instances in which items on vendor invoices that should have been expensed were capitalized. Since errors of this nature cause the factory equipment account to be overstated, you have been instructed to use probability-proportional-to-size (PPS) sampling to determine the extent to which such misstatements occurred during 2020. Your supervisor set the following sampling plan parameters. • . Risk of incorrect acceptance: Tolerable misstatement: Expected misstatement: 15% $450,000 (5% of recorded additions) $180,000 (2% of recorded additions) An Excel file, Case Assignment 10 Solution, containing the three workpapers listed below is posted on Blackboard in the Information Textbook Chapter 10 Case Assignment 10 folder. WP 11.3A: Sample Size and Sampling Interval Information. • WP 11.3B: Calculation of Projected Misstatement. WP 11.3C: Calculation of Upper Misstatement Limit. Download the Excel file and save it to an Excel file named "Your Name" - Case Assignment 10 Solution. Required: 1. Review the Sample Size and Sampling Interval Information on WP 11.3A. Insert your name and the date you reviewed the workpaper. 2. Finish the partially completed Calculation of Projected Misstatement on WP 11.38. Insert your name and the date you finished the workpaper. 3. Prepare a Calculation of Upper Misstatement Limit in good form on WP 11.3C. Show all supporting calculations Insert your name and the date you finished the workpaper. 4. Document your evaluation of the sampling results at the bottom of WP 11.3C. Include: a. Your statistical conclusion. b. The audit decision you reached based on your quantitative sampling results, including the reason for your decision. BILTRITE BICYCLES, INC. - December 31, 2020 3 PPS Sampling Analysis of Factory Equipment Additions 5 Recorded factory equipment additions Risk of incorrect acceptance 9 Tolerable misstatement 10 Expected misstatement. 11 Sample size used 12 Sampling interval 13 14 15 16 Sample Size and Sampling Interval Information 17 18 19 20 21 22 23 24 25 26 C $9,000,000 15.00% $450,000 (5% of recorded additions) $180,000 (2% of recorded additions) 87 (rounded up from 86 4) $103,000 (rounded down from $103,448) D WP 11.3A Name: Date: G BILTRITE BICYCLES, INC.-December 31, 2020 PPS Sampling Analysis of Factory Equipment Additions Invoice 7 Number 8372134 9 1779927 10 3668498 11 9873625 12 10224680 13 14 15 16 17 10 19 20 Vendor Laxey Machine Works, Ltd Gerald Equipment and Parts, Inc. Cradle Corporation Johnson's Welding and Machining Ladlow Parts and Repairs i Calculation of Projected Misstatement Misstatement (BV-AV Book Value $166,500 $2,300 508,530 $15,570 $28,700 $311,830 Audit Value $152,060 $0 $90,000 $15,000 $28.000 $201.000 Sample size and S Projected Minstatement Upper Misitarement Limit O $14,520 $2,360 $2,530 $570 $790 $20.770 Tainting % (BV-AV/BV WP 11.38 Name: Date: Sampling Interval Projected Misstatement

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