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	$	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

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.

Answer 1

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