Question

Sparrow Company uses the retail inventory method to estimate ending inventory and cost of goods sold. Data for 2021 are as follows:

	Cost			Retail
Beginning inventory	$	97,000		$	187,000
Purchases		363,000			587,000
Freight-in		9,700
Purchase returns		7,700			11,700
Net markups					16,700
Net markdowns					12,700
Normal spoilage					3,700
Abnormal spoilage		5,546			8,700
Sales					547,000
Sales returns					10,700

The company records sales net of employee discounts. Employee discounts for 2021 totaled $4,700.

Required:
2. Estimate Sparrow’s ending inventory and cost of goods sold for the year using the retail inventory method and the conventional application. (Round Cost-to-retail percentage to 2 decimal places and final answers to the nearest whole dollar amount.)

Answer 1

Particulars	Cost	Retail
Beginning Inventory	$97,000	$187,000
Add: Purchase	$363,000	$587,000
Add: Freight-in	$9,700
Total	$469,700	$774,000
Less: Purchase Return	($7,700)	($11,700)
Add: Net Markups		$16,700
Less: Abnormal Spoilage	($5,546)	($8,700)
Totals	$456,454	$770,300
Cost to Retail percentage   = $456,454 / $770,300    =    59.26%
Less: Net Markdowns		($12,700)
Goods Available for Sale	$456,454	$757,600
Less: Normal Spoilage		($3,700)
Less: Sales (-) Sales returns
Net Sales ($547,000 - $10,700)		$536,300
Less : Employment Discounts		($4,700)
Estimated ending inventory at retail		$212,900
Estimated ending inventory at cost ($212,900 x 59.26%)	$126,165
Estimated cost of goods sold ($456,454 ( -) $126,165)	$330,289