Question

Nueva company reported the following pretax data for its first year of operations. net sales 7,700 cost of goods available for sale 5,970 operating expenses 1,818 effective tax rate 25% ending inventories: if lifo is elected 708 if fifo is elected 888 what is nueva's net income if it elects lifo?

a) $5,000
b) $6,700
c) $7,000
d) $7,700

Answer 1

After calculating the cost of goods sold using the LIFO method ($5,262) and subtracting it from net sales, deducting operating expenses, and adjusting for taxes, the net income for Nueva would be $465. However, this result does not match any of the provided answer choices, suggesting that there might be a mistake in the question or options.

Step-by-step explanation:

To determine Nueva's net income if it elects LIFO (Last-In, First-Out), we must first calculate the cost of goods sold, subtract it from net sales, then deduct operating expenses, and finally adjust for taxes.

Step-by-Step Calculation:

1. Cost of Goods Sold (COGS): COGS = Cost of goods available for sale - Ending inventory (using LIFO). So, COGS = $5,970 - $708 = $5,262.
2. Gross Profit: Gross Profit = Net Sales - COGS. Thus, Gross Profit = $7,700 - $5,262 = $2,438.
3. Operating Income: Operating Income = Gross Profit - Operating Expenses. Hence, Operating Income = $2,438 - $1,818 = $620.
4. Tax Expense: Tax Expense = Operating Income * Effective Tax Rate. Thus, Tax Expense = $620 * 25% = $155.
5. Net Income: Net Income = Operating Income - Tax Expense. Therefore, Net Income = $620 - $155 = $465.

However, given the options provided, none of them match the calculated net income of $465. There could be a typo in the question or the options. It's important to ensure the accuracy of the data provided.