In: Accounting
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.
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