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 2018 are as follows Cost Retail Beginning inventory Purchases Freight-in Purchase returns Net markups Net markdowns Normal spoilage Abnormal spoilage Sales Sales returns $ 96,000 $186,000 361,000 586,000 9,600 7,600 11,600 16,600 12,600 3,600 8,600 546,000 10,600 5,520 The company records sales net of employee discounts. Discounts for 2018 totaled $4,600 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 2. Estimate Sparrow's ending inventory and cost of goods sold for the year using the retail inventory method and the conventional application (For all requirements, round Cost-to-retail percentage to two decimal places and final answers to whole dollars.) onventional verage cos application application Estimated ending inventory at retail Estimated ending inventory at cost Estimated cost of goods sold

Explanation / Answer

Part 1 Estimate the ending inventory and cost of goods sold using the retail inventory method and average cost application Cost Retail Beginning Inventory $          96,000 $          186,000 Add: Purchases $        361,000 $          586,000 Freight -in $            9,600 Less: Purchase return $          (7,600) $          (11,600) Add; Net Markup $            16,000 Less: Net Markdown $          (12,600) Abnormal spoilage $          (5,520) $            (8,600) Goods Available for sale $        453,480 $          755,200 Cost/Retail % = 453480/755200 = 60.04% Less: Normal Spoilage $      (3,600.00) Net Sales (546000-10000) $ (536,000.00) Employee Discount $      (4,600.00) Ending Inventory at retail $    211,000.00 Ending Inventory at cost ($211000 * 60.04%) $ 126,684.40 Cost of Goods Sold $ 326,795.60 Part 2 Estimate the ending inventory and cost of goods sold using the retail inventory method and conventional application Cost Retail Beginning Inventory $          96,000 $          186,000 Add: Purchases $        361,000 $          586,000 Freight -in $            9,600 Less: Purchase return   $          (7,600) $          (11,600) Add; Net Markup $            16,000 Less: Abnormal spoliage $          (5,520) $            (8,600) $        453,480 $          767,800 Cost / retail % = 453480/767800 = 59.06% Less: Net Markdowns $          (12,600) Good available for sale $        453,480 $          755,200 Less: Normal Spoilage $            (3,600) Net Sales (546000-10000) $       (536,000) Employee Discount $            (4,600) Ending Inventory at retail $          211,000 Ending Inventory at cost ($211000 * 59.06%) $ 124,616.60 Cost of Goods Sold $ 328,863.40

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