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Stanton Enterprises
Worksheet 9-39A
Determination of Materiality and
Allocation to the Accounts
12/31/2016
DETERMINATION OF MATERIALITY:
Income before taxes $8,004,277
Possible adustments - estimated.
See Worksheet 9-39B:
Increase allowance for
uncollectible accounts (220,000) Increase to equal same % of trade accounts receivable as prior year.
Increase accounts payable (1,070,000) Reflect same increase as cost of goods sold.
Pension cost NA Can't estimate. May or may not be required.
Adjusted net income before taxes $6,714,277
Round down to $330,000
Note: A key consideration is whether the Company will be
required to make its additional pension contribution.
As more information is obtained, the amount considered
material may be reduced to assure any possible
misstatements in earnings are considered in light of
that contractual obligation.
Stanton Enterprises
Worksheet 9-39A, cont.
Prelim. 12/31/16 Performance Materiality
Cash $243,689 5000 Easy to audit at low cost.
Trade accounts receivable 3,544,009 80000
Large performance materiality (PM) because account
is large and requires extensive sampling to audit.
Allowance for uncollectible accounts (120,000) 15000 Fairly large PM because of inherent risk.
Inventories 4,520,902 100000 Large PM because account is large and
requires extensive sampling to audit.
Prepaid expenses 29,500 5000 Easy to audit at low cost.
Property, plant and equipment, at cost 12,945,255 100000 Small PM as a percent of account balance
because most of balance is unchanged from
prior year & audit of additions is relatively low cost.
Less: accumulated depreciation (4,382,990) 40000 Fairly low PM due to possible risk of
8,562,265 misstatement. See answers to part c. of HW 9-39 and worksheet 9-39B.
Goodwill 1,200,000 20000 Fairly low PM due to possible risk of
Total assets $17,980,365 misstatement. See answers to part c. of HW 9-39 and worksheet 9-39B.
misstatement. See answers to part c. of HW 9-39 and worksheet 9-39B.
Current portion of long-term 240,000 0 Easy to audit at low cost.
Total current liabilities 4,455,152
Long-term debt 960,000 0 Easy to audit at low cost.
Stockholders' equity:
Common stock 1,250,000 0 Easy to audit at low cost.
