Question

The company records sales net of employee discounts. Employee discounts for 2024 totaled $3,200. 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. Note: Round cost-to-retail percentage to 2 decimal places and final answers to the nearest whole dollar amount.

a. Ending Inventory: $125,159; Cost of Goods Sold: $513,741
b. Ending Inventory: $125,159; Cost of Goods Sold: $523,741
c. Ending Inventory: $115,159; Cost of Goods Sold: $523,741
d. Ending Inventory: $115,159; Cost of Goods Sold: $513,741Sparrow

Answer 1

A), To estimate Sparrow's ending inventory and cost of goods sold using the retail inventory method and the average cost application, the cost-to-retail percentage needs to be calculated first. The estimated ending inventory at cost can then be found by applying the cost-to-retail percentage to the ending inventory at retail. The cost of goods sold can be calculated by subtracting the estimated ending inventory at cost from the cost of goods available for sale.

Step-by-step explanation:

To estimate Sparrow's ending inventory and cost of goods sold using the retail inventory method and the average cost application, we need to calculate the cost-to-retail percentage first. The cost-to-retail percentage is calculated by dividing the cost of goods available for sale by the retail value of goods available for sale. In this case, the employee discounts of $3,200 need to be subtracted from the retail value of goods available for sale. Once we have the cost-to-retail percentage, we can apply it to the ending inventory at retail to find the estimated ending inventory at cost. Subtracting the estimated ending inventory at cost from the cost of goods available for sale will give us the estimated cost of goods sold. In this case, the correct answer is option a. Ending Inventory: $125,159; Cost of Goods Sold: $513,741.