Sparrow Company uses the retail inventory method to estimate ending inventory an

Question

Sparrow Company uses the retail inventory method to estimate ending inventory and cost of goods sold. Data for 2016 are as follows: Cost Retail Beginning inventory $ 92,000 $ 182,000 Purchases 360,000 582,000 Freight-in 9,200 Purchase returns 7,200 11,200 Net markups 16,200 Net markdowns 12,200 Normal spoilage 3,200 Abnormal spoilage 4,840 8,200 Sales 542,000 Sales returns 10,200 The company records sales net of employee discounts. Discounts for 2016 totaled $4,200. Required: 1. Estimate Sparrow’s ending inventory and cost of goods sold for the year using the retail inventory method and the average cost application. (Round your cost-to-retail percentage calculation to 2 decimal places.) 2. Estimate Sparrow’s ending inventory and cost of goods sold for the year using the retail inventory method and the conventional application. (Round your cost-to-retail percentage calculation to 2 decimal places.)

Explanation / Answer

Part1 Estimate Sparrow’s ending inventory and cost of goods sold for the year using the retail inventory method and the average cost application Cost Retail Beginning inventory $92,000 $1,82,000 Add: Purchases 3,60,000 5,82,000 Freight-in 9,200 Deduct: Purchase returns -7,200 -11,200 Add: Net markups 16,200 Deduct: Net markdowns -12,200 Abnormal spoilage -4,840 -8,200 Goods available for sale 4,49,160 7,48,600 60.00 Cost/Retail % = $449,160 ÷ $748,600 = 60% Deduct: Normal spoilage (3,200) Net sales (542,000- 10,200) (5,31,800) Employee discounts -4200 Ending Inventory at retail $209400.000 Ending inventory at cost (60%*209400) 125640 Cost of goods sold 3,23,520 PART 2 Estimate Sparrow’s ending inventory and cost of goods sold for the year using the retail inventory method and the conventional application. Cost Retail Beginning inventory 92000 182000 Add: Purchases 360000 582000 Freight-in 9200 Deduct: Purchase returns -7200 -11200 Add: Net markups 16200 Abnormal spoilage -4840 -8200 Goods available for sale 449160 760800 59.04 Cost/Retail % = $449,160 ÷ $760800 = 59% Deduct: Net Markdown -12200 Goods available for sale 449160 748600 Deduct: Normal spoilage -3200 Net sales (542,000- 10,200) -531800 Employee discounts -4200 Ending Inventory at retail 209400 Ending inventory at cost (59%*209400) -123546 Cost of goods sold 325614

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