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?

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

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