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:

The company records sales net of employee discounts. Discounts for 2018 totaled $3,000.

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.)

Cost Retail Beginning inventory $ 80,000 $ 170,000 Purchases 347,000 570,000 Freight-in 8,000 Purchase returns 6,000 10,000 Net markups 15,000 Net markdowns 11,000 Normal spoilage 2,000 Abnormal spoilage 3,705 7,000 Sales 530,000 Sales returns 9,000

Explanation / Answer

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

$80000

$170000

Add: Purchases

347000

570000

Add: Freight-in

8000

Less:Purchase returns

(6000)

(10000)

Add: Net markups

15000

Less: Net markdowns

(11000)

Less: Abnormal spoilage

(3705)

(7000)

Goods Available for sales

$425295

$727000

Less: Normal spoilage

(2000)

Net Sales(530000 - 9000)

(521000)

Employee Discounts

(3000)

Ending Inventory at retail

$201000

Ending inventory at Cost

(117585)

Cost of goods sold

$307710

Cost retail % = 425295/727000 = 58.5%

Ending inventory at cost = (58.5% x $201000) = $117585

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

$80000

$170000

Add: Purchases

347000

570000

Add: Freight-in

8000

Less:Purchase returns

(6000)

(10000)

Add: Net markups

15000

Less: Abnormal spoilage

(3705)

(7000)

Goods Available for sales

$425295

$738000

Less: Net Marks down

(11000)

Goods Available for sales

$425295

$727000

Less: Normal spoilage

(2000)

Net Sales(530000 - 9000)

(521000)

Employee Discounts

(3000)

Ending Inventory at retail

$201000

Ending inventory at Cost

(115816)

Cost of goods sold

$309479

Cost retail % = 425295/738000 = 57.62%

Ending inventory at cost = (57.62% x $201000) = $115816

Cost

Retail

Beginning inventory

$80000

$170000

Add: Purchases

347000

570000

Add: Freight-in

8000

Less:Purchase returns

(6000)

(10000)

Add: Net markups

15000

Less: Net markdowns

(11000)

Less: Abnormal spoilage

(3705)

(7000)

Goods Available for sales

$425295

$727000

Less: Normal spoilage

(2000)

Net Sales(530000 - 9000)

(521000)

Employee Discounts

(3000)

Ending Inventory at retail

$201000

Ending inventory at Cost

(117585)

Cost of goods sold

$307710

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