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Materiality Methodology:

Planning materiality (PM) is determined as follows:

(1) For public clients, we base materiality on 5-8% of the prior year's net income unless the client is at a loss or close to breaking even, in which case we base materiality on .5 - 1 % of total assets.

(2) For private clients, we base materiality on 1-3% of the prior year's equity.

Tolerable misstatement (TM) is set at 40 - 70 % of PM.

Required:

1. Using the financial statements document and following the guidelines document, compute financial statement level materiality (note the audit firm calls financial statement level materiality, PM planning materiality) for the year ending December 31, 20x2. Show your calculations in detail and in a short paragraph explain the rationale you followed to determine the percentage you used.
2. Using the financial statements and the guidelines document, compute performance materiality for the Accounts Receivable account (note the audit firm calls performance materiality, TM tolerable misstatement) for the year ending December 31, 20x2. Show your calculations in detail and in a short paragraph explain the rationale you followed to determine the percentage you used.

Alpine Mountaineering, Inc. Balance Sheets as of 12/31/202 and 12/31/20X1 (USD \$) Performed by: 785 02/25/20X3 Reviewed by: TKJ2/25/203 Balance Sheet: Current Assets Cash: Storefront Cash: Corporate Accounts Cash: Payroll Accounts Receivable Office Supplies Cooking Supplies Inventory: Ingredients Inventory: Cake Boxes and Cupcake Cups Inventory: Beverages Total Current Assets Long-Term Assets Equipment Accumulated Depreciation: Equipment Plant \& Property Accumulated Depreciation: Plant \& Property Land Total Long-Term Assets Total Assets Liabilities Accounts Payable Wage Taxes Payable Sales Taxes Payable Corporate Income Tax Payable Dividends Payable Mortgage Payable Notes Payable: Vehicles Total Liabilities Stockholders' Equity Common Stock, Par value $1.00; Authorized 1,000,000 shares; Issued and outstanding 50,000 shares Additional Paid in Capital Retained Earnings Total Stockholders' Equity Total Liabilities and Stockholders' Equity Tiobsart Lesensed TB-7ed to Deeencor 7utal Balance at 4.1.9. PY - Tied to frior year audit workfapers. F Footed. Alnina NAnuntainaarina Ine Alpine Mountaineering. Inc. PBC Income Statements for the 12 Months Ended 12/31/202,12/31/201, and 12/31/200 (USD \$) Performed by: 785 02/25/20x3 Reviewed by: TKJ 2/25/20X3 12 Months Ended 12 Months Ended 12 Months Ended December 31, December 31, December 31, 202 201 200 Total Expenses Earnings Before Income Taxes Income Tax Expense Net Income Earnings Per Share $4.34 $3.65 PY $3.97 PY Ticlumare Acenend TB - 7ied to Decermber 7reat Balanee at 4.1.9. PY - Tied to prion year audit menkpapers. F Footed. Recaleulated without exception

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