The 2000 accounts receivable of ABC Company have a total book value of $40,000.Bob Rotter,CPA,has selected and audited a sample of 100 accounts with a total book value of $1,950.The audited value of the 100 accounts in the sample is $1,875. Using the ratio estimation technique,Rotter's estimate (to the nearest dollar)of year-end accounts receivable balance would be:
A)$37,500
B)$38,462
C)$38,500
D)$41,600

Question

Quizplus · Accepted Answer

The ratio estimation technique involves calculating the ratio of the audited value to the book value of the sample and then applying this ratio to the total book value. The ratio is $1,875 / $1,950 = 0.9615. Applying this ratio to the total book value of $40,000 gives an estimated value of $38,462.

The 2000 Accounts Receivable of ABC Company Have a Total