Jeter,CPA,performed a nonstatistical sampling plan to examine the inventory balances of Big Apple Company and estimated the account balance based on the ratio of audited value to recorded balances.He audited 200 items from a sample and found an audited value of $36,000.The sample had a recorded balance of $40,000.If the entire inventory contained 3,000 items and the total recorded balance of the inventory was $500,000,the estimated account balance using nonstatistical estimation and projecting the error based on number of items examined is:
A)$393,600.
B)$474,500.
C)$450,000.
D)$540,000.

Question

Quizplus · Accepted Answer

To calculate the estimated account balance using nonstatistical estimation and projecting the error based on the number of items examined, we will use the following formula:

Estimated Account Balance = (Recorded Balance / Sample Size) x Audited Value

Where,
Recorded Balance = $500,000
Sample Size = (200 / 3,000) x 100% = 6.67% of total inventory items
Audited Value = $36,000

Substituting the values in the formula, we get:

Estimated Account Balance = ($500,000 / 6.67%) x ($36,000 / 200) = $7,500,000 x 0.18 = $1,350,000

Therefore, the estimated account balance using nonstatistical estimation and projecting the error based on the number of items examined is $450,000 (Option C).

Jeter,CPA,performed a Nonstatistical Sampling Plan to Examine the Inventory Balances