Bama's accounts receivable were recorded at $600,000.Assume that the auditor determined a sample size of 20 customer accounts and prepared confirmations to those customers.One misstatement was determined; an account recorded at $10,000 was confirmed to have a balance of $5,000. Using an incremental reliability factor of 1.58 (corresponding to the risk of incorrect acceptance of 5 percent),what is the incremental allowance for sampling risk?
A) $5,000.
B) $7,900.
C) $8,700.
D) $23,700.

Question

Quizplus · Accepted Answer

The incremental allowance for sampling risk is calculated by multiplying the misstatement ($5,000) by the incremental reliability factor (1.58), resulting in $7,900. Adding the misstatement itself ($5,000) gives a total of $8,700.

Bama's Accounts Receivable Were Recorded at $600,000