Final answer:
Calculating the projected misstatement in a PPS sampling involves multiplying the misstatement found by the sampling interval and then dividing by the recorded amount. In this case, the projected misstatement would be $2,000. Hence, the correct answer is B.
Step-by-step explanation:
In probability-proportional-to-size (PPS) sampling, when an auditor finds a misstatement in an account, they use this information to estimate the total misstatement of the entire population. In this scenario, a selected account with a recorded amount of $5,000 has an audited amount of $4,000, indicating a $1,000 misstatement. As the sampling interval is $10,000, we calculate the projected misstatement by multiplying the misstatement found by the sampling interval and then dividing by the recorded amount. To illustrate:
Projected Misstatement = (Misstatement Found / Recorded Amount) × Sampling Interval
Applying the numbers:
Projected Misstatement = ($1,000 / $5,000) × $10,000 = 0.2 × $10,000 = $2,000.
$2,000, which is the projected misstatement of the sample if this were the only error discovered by the auditor.
Hence, the correct answer is B.
"Your question is incomplete, probably the complete question/missing part is:"
In a probability-proportional-to-size sample with a sampling interval of $10,000, an auditor discovered that a selected account receivable with a recorded amount of $5,000 had an audited amount of $4,000. If this were the only misstatement discovered by the auditor, the projected misstatement of this sample would be: (AICPA adapted)
a. $1,000
b. $2,000
c. $5,000
d. $10,000