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 $ 86,000 $ 176,000 Purchases 363,000 576,000 Freight-in 8,600 Purchase returns 6,600 10,600 Net markups 15,600 Net markdowns 11,600 Normal spoilage 2,600 Abnormal spoilage 4,631 7,600 Sales 536,000 Sales returns 9,600 The company records sales net of employee discounts. Discounts for 2018 totaled $3,600. 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.

Explanation / Answer

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:-

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Cost Retail Beginning inventory 86,000 176,000 + Purchases 363,000 576,000 Freightin 8,600 - Purchase returns (6,600) (10,600) + Net markups 15,600 -   Net markdowns (11,600) Abnormal spoilage (4,631) (7,600) Goods available for sale 446,369 737,800 Cost/Retail % = 446,369 / 737,800 = 60.50% -   Normal spoilage (2,600) Net sales (563,000 - 9,600) (553,400) Employee discounts (3,600) Ending Inventory at retail 178,200 Ending inventory at cost (60.50% of 178,200) (107,811) Cost of goods sold 338,558

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