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LMB Inc. retail store recently had a fire at its location in downtown Mississauga. As...

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Accounting

LMB Inc. retail store recently had a fire at its location in downtown Mississauga. As part of claiming losses through the company's insurance policy, the owner has asked the bookkeeper to come up with what the ending inventory value to claim through insurance. The bookkeeper provided the following information to the owner.

The owner called the bookkeeper after receiving this information and indicated "there's an error in the inventory estimate of $300,000 at the time of the fire. The pricing all year has been carefully controlled to provide an average gross margin of 47.5% and I know the sales are correct"


Required

a)   Assuming that the owner's statement is correct, provide a revised calculation to show how much the ending inventory should have been.

b)   Assume instead that the bookkeeper was correct in her calculation. Provide two reasons why there may be a difference between the amount reported and the amount the owner was anticipating (limit your discussion in part (b) to one sentence each. If more than two reasons are provided, only the first two will be marked).


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