You are evaluating audit results for assets in the audit of Roberts Manufacturing. You set the preliminary judgment about materiality at $50,000. The account balances, tolerable misstatement, and estimated overstatements in the accounts are shown next:

Account Account balance Tolerable Misstate Est. of Total overstatement

Cash $50,000 $5,000 $1,000
Account Rec. $1,200,000 $30,000 $20,000
Inventory $2,500,000 $50,000 ?
Other assets $250,000 $15,000 $12,000
Total $4,000,000 $100,000 ?

a. Assume you tested inventory amounts totaling $1,000,000 and found $10,000 in overstatements. Ignoring sampling risk, what is your estimate of the total misstatement in inventory?

b. Based on the audit of the assets accounts and ignoring other accounts, are the overall financial statements acceptable?

c. What do you believe the auditor should do in the circumstances?