C is corrent because for accounts with a book value less than the sampling interval, one must first calculate a tainting percentage which is equal to: [(Recorded amount - Audit amount)/Recorded amount]. The tainting percentage is multiplied by the sampling interval to determine projected error. In this question the tainting percentage is 60% [($5,000 - $2,000)/$5,000]. The projected error is calculated as 60% times the sampling interval, or .60 x $10,000 = $6,000.
A is incorrect because the proper calculation involves projecting the percentage of misstatement ("tainting percentage") times the sample interval size when the item involved is less than the sample interval.
A is incorrect because the proper calculation involves projecting the percentage of misstatement ("tainting percentage") times the sample interval size when the item involved is less than the sample interval.
D is incorrect because the proper calculation involves projecting the percentage of misstatement ("tainting percentage") times the sample interval size when the item involved is less than the sample interval.
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