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 $4,400.

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.

Cost Retail Beginning inventory $ 94,000 $ 184,000 Purchases 364,000 584,000 Freight-in 9,400 Purchase returns 7,400 11,400 Net markups 16,400 Net markdowns 12,400 Normal spoilage 3,400 Abnormal spoilage 4,919 8,400 Sales 544,000 Sales returns 10,400

Explanation / Answer

1

Estimate the ending inventory and cost of goods sold using the retail inventory method

Cost

Retail

Beginning inventory

94000

184000

Add: Purchases

364000

584000

           Frieght - in

9400

Less: Purchase returns

-7400

-11400

Add: Net Mark ups

16400

less: Net mark downs

-12400

Abnormal spoilage

-4919

-8400

Goods available for sale

455081

752200

Cost/Retail (455081/752200)*100

Deduct:

Normal spoilage

-3400

Net sales [544000-10400]

-533600

Employee discounts

-4400

Ending inventory at retail

210800

Ending inventory at cost [210800*60.5%]

-127534

Cost of goods sold

327547

Estimate the ending inventory and cost of goods sold using the retail inventory method and the conventional application

Cost

Retail

Beginning inventory

94000

184000

Add: Purchases

364000

584000

           Frieght - in

9400

Less: Purchase returns

-7400

-11400

Add: Net Mark ups

16400

Abnormal spoilage

-4919

-8400

Goods available for sale

455081

764600

Cost/Retail (455081/764600)*100

0.595188

Deduct:

Normal spoilage

-3400

Net sales [544000-10400]

-533600

Employee discounts

-4400

Ending inventory at retail

223200

Ending inventory at cost [223200*59.5%]

-132804

Cost of goods sold

322277

1

Estimate the ending inventory and cost of goods sold using the retail inventory method

Cost

Retail

Beginning inventory

94000

184000

Add: Purchases

364000

584000

           Frieght - in

9400

Less: Purchase returns

-7400

-11400

Add: Net Mark ups

16400

less: Net mark downs

-12400

Abnormal spoilage

-4919

-8400

Goods available for sale

455081

752200

Cost/Retail (455081/752200)*100

Deduct:

Normal spoilage

-3400

Net sales [544000-10400]

-533600

Employee discounts

-4400

Ending inventory at retail

210800

Ending inventory at cost [210800*60.5%]

-127534

Cost of goods sold

327547

Estimate the ending inventory and cost of goods sold using the retail inventory method and the conventional application

Cost

Retail

Beginning inventory

94000

184000

Add: Purchases

364000

584000

           Frieght - in

9400

Less: Purchase returns

-7400

-11400

Add: Net Mark ups

16400

Abnormal spoilage

-4919

-8400

Goods available for sale

455081

764600

Cost/Retail (455081/764600)*100

0.595188

Deduct:

Normal spoilage

-3400

Net sales [544000-10400]

-533600

Employee discounts

-4400

Ending inventory at retail

223200

Ending inventory at cost [223200*59.5%]

-132804

Cost of goods sold

322277

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