Question

Sparrow Company uses the retail inventory method to estimate ending inventory and cost of goods sold. Data for 2021 are as follows: Beginning inventory Purchases Freight-in Purchase returns Net markups Net markdowns Normal spoilage Abnormal spoilage Sales Sales returns Cost Retail $ 88,000 $178,000 356,000 578,000 8,800 6,800 10,800 15,800 11,800 2,800 4,867 7,800 538,000 9,800 The company records sales net of employee discounts. Employee discounts for 2021 totaled $3,800. 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. (Round Cost-to-retail percentage to 2 decimal places and final answers to the nearest whole dollar amount.) Average cost application Estimated ending inventory at retail Estimated ending inventory at cost Estimated cost of goods sold

Answer 1

Ans.(1)

PARTICULARS	COST	RETAIL
Beginning Inventory	$88,000	$178,000
Add:- Purchases	$356,000	$578,000
Add:- freight In	$8,800
Less:- Purchases Return	$6,800	$10,800
Inventory available for sale	$446,000	$745,200
Less:- Net Markdown		$11,800
Add:- Net Markups		$15,800
Less:- Abnormal Spoilage	$4,867	$7,800
Goods available for sale	$441,133	$741,400

Less: - Sales return		$9,800
Less:- Sales		$538,000
Less;- Normal spoilage		$2,800
Less:- Employee discount		$3,800
Ending Inventory at retail		$187,000
Less:- Ending inventory at cost($187,000 x 59.50%)	$111,265
Cost of Goods sold	$329,868

cost to retail ratio  = Goods available for cost / goods available for retail =  $441,133 / $741,400 = 59.50%

(2)

PARTICULARS	COST	RETAIL
Beginning Inventory	$88,000	$178,000
Add:- Purchases	$356,000	$578,000
Add:- freight In	$8,800
Less:- Purchases return	$6,800	$10,800
Inventory available for sale	$446,000	$745,200
Add:- Net Markups		$15,800
Less;- Abnormal spoilage	$4,867	$7,800
Goods available for sale	$441,133	$753,200
Less:- Net Markdown		$11,800
sales $538,000
Less:- sales return $9,800		$528,200
Less;- normal spoilage		$2,800
Less:- employee discount		$3,800
Ending Inventory at retail		$206,600
Less:- Ending Inventory at cost ($206,600 x 58.57%)	$121,001
Cost of goods sold	$320,132

cost to retail ratio  = Goods available for cost / goods available for retail = $441,133 / $753,200 = 58.57%