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 value of $40,000.If the entire inventory contained 3,000 items and the total recorded value 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 number of items examined, we need to follow the below steps:

1. Calculate the sample ratio: 
   Sample ratio = Audited value / Recorded value 
               = $36,000 / $40,000 
               = 0.9

2. Apply the above calculated sample ratio to the entire recorded inventory balance to get the estimated account balance: 
   Estimated account balance = Recorded inventory balance * Sample ratio 
                             = $500,000 * 0.9 
                             = $450,000

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

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