Question

In: Accounting

Sparrow Company uses the retail inventory method to estimate ending inventory and cost of goods sold....

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 $ 96,000 $ 186,000
Purchases 361,000 586,000
Freight-in 9,600
Purchase returns 7,600 11,600
Net markups 16,600
Net markdowns 12,600
Normal spoilage 3,600
Abnormal spoilage 5,520 8,600
Sales 546,000
Sales returns 10,600


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.

Solutions

Expert Solution

Answer:

Given that

Cost Retail
Beginning inventory $96000 $186,000
Purchases 361000 586000
Freight-in $9600
Purchase returns $7600 11600
Net markups 16600
Net markdowns 12600
Normal spoilage 3600
Abnormal spoilage 5520 8600
sales 546000
Sales return 10600

1)

Cost Retail
Beginning inventory $96000 $186,000
Add:Purchases 361000 586000
Add:Freight-in $9600 $0
Deduct : Purchase return -$7600 $11600
Add:Net markups 16600
Deduct :Net markdowns 12600
Abnormal spoilage -$5520 $8600
Goods available for sale $453,480 $755,800
Deduct: Normal spoilage $3600
Net sales -$535400 [546600-10600]
Employee discount -$4600
Ending recovery at retail $212200
Ending inventory at cost $127,300 [$212200*60%]

2)

Cost Retail
Beginning inventory $96000 $186,000
Add:Purchases 361000 586000
Add:Freight-in $9600 $0
Deduct : Purchase return -$7600 $11600
Add:Net markups 16600
Deduct :Net markdowns 12600
Abnormal spoilage -$5520 $8600
Goods available for sale $453,480 $755,800
Deduct: Normal spoilage $3600
Net sales -$535400 [546600-10600]
Employee discount -$4600
Ending recovery at retail $212200
Ending inventory at cost $127,300 [$212200*60%]

Summary:

Estimated cost of goods sold= Goods available for sale-Ending inventory cost

Avg cost   Convention

Estimated ending inventory at retail $212,200 $212,200

Estimated ending inventory at cost $127,320 $125,240

Estimated cost of goods sold $326,160 $328,240


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