A client's inventory is recorded at $300,000 and is comprised of 1,000 items.If auditors examined a sample of 200 items and found a total misstatement of $20,000 (overstatement),what is the estimated audited balance for inventory?
A) $20,000
B) $100,000
C) $200,000
D) $400,000

Question

Quizplus · Accepted Answer

To estimate the audited balance for inventory, we first need to calculate the misstatement rate in the sample. 
Misstatement rate = Total misstatement in the sample / Total value of the sample
= $20,000 / (200/1000*$300,000)
= 0.33 or 33%
 
Then, we can use this misstatement rate to estimate the audited balance for the whole inventory as follows:
 
Estimated audited balance = Recorded balance - (Recorded balance * Misstatement rate)
= $300,000 - ($300,000 * 33%)
= $200,000
 
Therefore, the best choice is C, with an estimated audited balance of $200,000.

A Client's Inventory Is Recorded at $300,000 and Is Comprised