Linsang Corporation's retail store and warehouse closed for the entire weekend while the year-end inventory was counted. When the count was finished, the controller gathered all the count books and information from the clerical staff, completed the ending inventory calculations, and prepared the following partial income statement for the general manager for Monday morning:

The general manager called the controller into her office after quickly reviewing the preliminary statements. "You've made an error in the inventory," she stated. "My pricing all year has been carefully controlled to provide a gross profit of 35%, and I know the sales are correct."
Instructions
(a) How much should the ending inventory have been?
(b) If the controller's ending inventory amount was due to an error, suggest where the error might have occurred.

Transcribed Image Text:

Sales Beginning inventory $2,750,000 Purchases Total goods available for sale Less ending inventory Cost of goods sold Gross profit 650,000 1,550,000 2,200,000 650,000 1,550,000 $1,200,000