Question

Nu Company reported the following pretax data for its first year of operations. Net sales 2,870 Cost of goods available for sale 2,490 Operating expenses 780 Effective tax rate 20 % Ending inventories: If LIFO is elected 960 If FIFO is elected 1,260 What is Nu's net income if it elects FIFO?

Answer 1

Answer:

Net income = $688

Explanation:

If Nu elects FIFO, we have:

Cost of good sold = Cost of goods available for sale -  Ending inventories = 2,490 - 1,260 = $1,230

Gross profit =  Net sales - Cost of good sold = 2,870 - 1,230 = $1,640

Net operating income = Gross profit - Operating expenses = 1,640 - 780 = $860

Tax = $860 × 20% = $172

Net income = $860 - $172 = $688