Accounting – Probability/ Sampling

Due: 05/11/2015 before 11PM eastern time (US)

Question 1 (Probability Proportionate to size)

You have selected 100 sample items from ABC’s accounts receivable population.Forthisproblemonly,assumethetotalpopulationforaccountsreceivableis $500,000.

Now let us assume the following invoices were selected. This is only a partial listofpopulation items.  Start with a random starting point of$1,223.

Required:

Whichinvoiceswouldyouselect?

Question 2 (Variables Sampling Problem)

You have been charged to perform test of controls over Accounts Receivable. Youhaveselected PPS sampling method because it automatically results in a stratified sample.

You computed the sample size, using the risk of incorrect acceptance, the   total recordedamountofreceivablesandthenumberofmisstatedaccountsallowedanddividedthetotalrecordedbookamountofreceivablesbythesample sizeinordertodeterminingasamplinginterval.Youhavecalculatedthesamplesizetobe60andthesamplingintervaltobe$10,000.Giventhis,only50differentaccountswereselectedbecause several of the accounts were so large that the sampling interval caused    each ofthemtobeselectedtwice.Giventheresultsyousent55confirmations.Threeoftheselectedaccountsinyoursamplehadbalancesunder$20andso youdecidednottosend them confirmations, and three had negative balances. Instead you substitutedthethree largest accounts that had not been selected in the sample. Each of   theseaccounts had a balance greater than $7,000. The results of the confirmationsrevealedtwo differences. One difference showed an audit amount of $3,000 but had beenrecorded at $4,000. Therefore you projected this to be a $1,000 misstatement the otheraccount had an audit is amount of $2,000 but had been recorded at $1,900. You didnotcountthe$100differencebecausethepurposethetestwasto detectoverstatements.

ThereforeyourvaluationstatesthattheAccountsReceivablebalancewasnot   overstated because the projected misstatements was less than the allowance for samplingrisk.

Required:

Discussed each incorrect assumption, statement and/are inappropriate applicationofthe sampling procedures that you used.