Question

Sparrow Company uses the retail inventory method to estimate ending inventory and cost of goods sold. Data for 2018 are as follows: 33 Retail Cost $ 93,000 $183,000 583,000 Beginning inventory Purchases 362,000 9,300 7,300 Freight-in Purchase returns 11,300 20 Net markups 16,300 12,300 3,300 8,300 polnts Net markdowns Normal spoilage Abnormal spoilage 4,884 X 0228:31 Sales 543,000 Sales returns 10,300 The company records sales net of employee discounts. Discounts for 2018 totaled $4,300. 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. (For all requirements, round Cost-to-retail percentage to two decimal places and final answers to whole dollars.) Average cost application Conventional application Estimated ending inventory at retail Estimated ending inventory at cost Estimated cost of goods sold

Answer 1

Answer :-

1)Estimate the ending inventory and cost of goods sold using the retail inventory method and average cost -

Particular	Cost	Retail
Beginning inventory	$93,000	$183,000
Add:   Purchases	362,000	583,000
Add :Freight‐in	9,300	-
Less : Purchase returns	(7,300)	(11,300)
Add: Net markups		16,300
Less : Net markdowns		(12,300)
Less :Abnormal spoilage	(4,884)	(8,300)
Goods available for sale Total	452,116	750,400
Cost/Retail % = (452,116 ÷ 750,400)×100 Cost /Retail% = 60.25%
Less : Normal spoilage		(3,300)
Less :Net sales (Net sales = Sales - Sales return = 543,000 - 10,300)		(532,700)
Less :Employee discounts		(4,300)
Ending Inventory at retail		210,100
Ending inventory at cost (Ending inventory at retail × cost /retail % =210,100 ×60.25%)	126,585
Cost of goods sold (Goods available for sale - Ending inventory at cost)	325,531

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​​​​​2)Estimate the ending inventory and cost of goods sold using the retail inventory method and conventional application -

Particular	Cost	Retail
Beginning inventory	$93,000	$183,000
Add:   Purchases	362,000	583,000
Add : Freight‐in	9,300
Less : Purchase returns	(7,300)	(11,300)
Add: Net markups		16,300
Less : Abnormal spoilage	(4,884)	(8,300)
Total	452,116	762,700
Cost/Retail % =(452,116 ÷ 762,700)× 100 Cost /Retail % = 59.29%
Less : Net markdowns		(12,300)
Goods available for sale	456,112	750,400
Less :Normal spoilage		(3,300)
Less : Net sales (Net sales =Sales - Sales return = 543,000 - 10,300)		(532,700)
Less :Employee discounts		(4,300)
Ending Inventory at retail		210,100
Ending inventory at cost (Ending inventory at retail × cost /retail % =210,100 ×59.29%)	124,568
Cost of goods sold (Goods available for sale - Ending inventory at cost)	331,544

In Both the method there is only one difference in conventional application and average cost that Net Marketdowns is deducted after Cost /Retail % in Conventional Application.