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Ending Inventory using Gross Profit Method

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Honda holds inventory all over the world. Assume that the records for an auto part shows the following:

Beginning inventory - $150,000
Net purchases - 800,000
Net sales - 1,000,000
Gross profit rate - 40%

Suppose this inventory, stored in the U.S., was lost in a fire. Estimate the amount of the loss to Honda. Use the gross profit method.

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The solution computes Ending Inventory using Gross Profit Method when inventory is lost in a fire.

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