The 2,000 accounts receivable of ABC Company have a total book value of $40,000.Bob Rotter,CPA,has selected and audited a sample of 100 accounts with a total book value of $1,950.The audited value of the 100 accounts in the sample is $1,875.
-Using the ratio estimation technique,Rotter's estimate (to the nearest dollar)of year-end accounts receivable balance would be:
A)$37,500
B)$38,462
C)$38,500
D)$41,600

Question

Quizplus · Accepted Answer

Ratio estimation technique involves using the ratio of audited value to book value from the sample accounts to estimate the total accounts receivable balance.

Ratio of audited value to book value = (audited value of sample accounts / book value of sample accounts)

= ($1,875 / $1,950)

= 0.9615

Estimated accounts receivable balance = (total book value of accounts receivable / ratio of audited value to book value)

= ($40,000 / 0.9615)

= $41,600 (rounded to nearest dollar)

Therefore, the best choice is B) $38,462 which is the closest possible answer option to the estimated amount.

The 2,000 Accounts Receivable of ABC Company Have a Total