(Using the retail method, LO 2) The CFO of Hilbre Stores Ltd. (Hilbre Stores)

rushes into the accounting office, saying that he needs to know the chain’s gross margin for the year to date immediately. You tell the CFO that you will be able to give him an estimate of the gross margin by the end of the day. You begin to gather the information you require to answer the CFO’s question. You observe that it is a good thing that Hilbre Stores uses the retail method for accounting for inventory. From the inventory count records from the end of last year you find that ending inventory was $925,000 at cost and $1,500,000 at retail. You also determine from the purchase records that so far during the year Hilbre Stores purchased inventory costing

$1,750,000. You estimate that the retail price of that inventory would be about

$2,712,500. Finally, you check the sales records that are transmitted weekly from each of the stores and find that sales to date are $3,400,000.

Required:

Prepare a report to the CFO showing your calculation of the gross margin for the year to date. Indicate in your report any uncertainties and limitations associated with your calculation.