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 difference 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

To use the difference estimation technique, we need to find the average book value per account in the sample, which is calculated as $1,950/100=$19.50 per account. Then, we find the difference between the audited value and the book value for each account in the sample, and calculate the average difference per account as follows:

Average difference per account=($1,950-$1,875)/100=$0.75 per account

Finally, we estimate the year-end accounts receivable balance by multiplying the average book value per account in the population by the total number of accounts in the population and adding the product of the average difference per account and the total number of accounts in the population:

Estimated year-end accounts receivable balance=($19.50)(2,000)+($0.75)(2,000)=$38,500

Therefore, the best choice is C ($38,500).

The 2000 Accounts Receivable of ABC Company Have a Total