Management estimates the company's allowance for doubtful accounts as $200,000,and the auditors develop an estimate that suggests that the amount should be between $230,000 and $250,000,with all points in that interval equally likely.The judgmental misstatement in this situation is:
A)$0.
B)$30,000.
C)$40,000.
D)$50,000.

Question

Quizplus · Accepted Answer

The judgmental misstatement is the difference between the management estimate and the auditors' estimate. In this case, the difference is the range between $230,000 and $250,000, which is $20,000. Since all points in the interval are equally likely, the midpoint of the range can be used as the best estimate of the misstatement, which is ($230,000 + $250,000) / 2 = $240,000. Therefore, the best estimate of the misstatement is $240,000 - $200,000 = $40,000, which corresponds to choice C.

Management Estimates the Company's Allowance for Doubtful Accounts as $200,000,and