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

question 21

Multiple Choice

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.

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Definitions:

Return On Investment

A measure of the profitability of an investment, calculated by dividing the gain from the investment by the cost of the investment.

Combined Margin

A metric that combines multiple types of profit margins (such as gross, operating, or net margin) to assess overall performance.

Contribution Margin Ratio

The percentage of sales revenue remaining after variable costs are deducted, indicating how much contributes to fixed costs and profit.

Fixed Expenses

Costs that do not change with the level of production or sales over a certain period, such as rent, salaries, and insurance.