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Sampling by accountants Accountants often use stratified samples during audits to verify a company鈥檚 records of such things as accounts receivable. The

stratification is based on the dollar amount of the item and often includes 100% sampling of the largest items. One company reports 5000 accounts receivable. Of these, 100 are in amounts over \(50,000;500 are in amounts between \)1000and\(50,000; and the remaining 4400are in amounts under \)1000Using these groups as strata, you decide to verify all the largest accounts and to sample 5% of the midsize accounts and 1%of the small accounts. How would you label the two strata from which you will sample? Use Table D, starting at line 115 to select only the first3 accounts from each of these strata.

Short Answer

Expert verified

The small accounts 2631,2552 and 1445 were selected.

Step by step solution

01

Given information

Total No. of accounts receivable =500

No. of accounts receivable amounts over $50,000=100

No. of accounts receivable amounts between $1000and$50,000=500

No. of accounts receivable amounts under $1000=4400

A sample size of 5% of the midsize accounts = 5000.05=25

A sample size of 1% of small accounts = 4400.01=44

A sample size of 100% sampling of the largest items = 1001=100

Total sample size, n=3+3=6

02

Concept

A simple random sample (SRS) of size n is made up of n people chosen from the population with an equal chance of being the sample that is actually chosen.

03

Calculation

The stratification is based on the item's financial value, and it frequently contains a 100percent sample of the most expensive things. 5000accounts receivable are reported by one company. There are 100in sums greater than $50,000500in amounts between $1000and $50,000and 4400in amounts less than $1000

Line 115-116of table D:61041776849432224709736981452631893325921445926056

Significant accounts (amount above 50,000)

There are a total of 100major accounts.

Assign a unique number between 00and 99to each major account.

In line 115choose the first two-digit number. The appropriate huge account is chosen.

Repeat until three distinct large accounts have been chosen.61Selectaccount6104Selectaccount0417Selectaccount17

As a result, the huge accounts 61,04and 17were chosen.

Medium-sized businesses (amount between 1000 and 50,000)

In total, there are 500 midsize accounts.

Assign a unique number between 1 and 500 to each midsize account.

In line 115 choose the first three-digit number (starting where we left off for the large accounts). If the number is between 001 and 500 the associated midsize account is chosen; otherwise, the number is ignored and the next 3-digit number is chosen.

As a result, the big accounts 61,04 and 17were chosen.

Accounts in the middle (amount between 1000 and 50,000)

In total, there are 500 medium accounts.

Assign a distinct number between 1 and 500 to each medium-sized account.

In line 115choose the first three digits (starting where we left off for the large accounts). If the number falls between 001and 500the associated midsize account is chosen; otherwise, the number is ignored and the next three-digit number is chosen.

Repeat until 3 unique midsize accounts are selected.768Ignore943Ignore222Selectaccount222470Selectaccount470973Ignore698Ignore

145Select account 145

As a result, the 222,470and 145midsize accounts were chosen.

Small business accounts (amount below 1000)

In total, there are 4400 tiny accounts.

Assign a unique number between 1 and 4400 to each tiny account.

In line 115 choose the first four-digit number (starting where we left off for the midsize accounts). If the number is between 001 and 4400 the associated midsize account is chosen; otherwise, the number is ignored and the next 4-digit number is chosen.

Repeat until 3 unique small accounts are selected.2631Selectaccount26318933Ignore2592Selectaccount25921445Selectaccount1445

Thus the small accounts 2631,2592and 1445 were selected.

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