What is Nueva's net income if it elects LIFO?
A)$440.
B)$264.
C)$620.
D)$372.

Question

Quizplus · Accepted Answer

To calculate the net income using LIFO, we first need to calculate the cost of goods sold. Using LIFO, we assume that the last items purchased are the first ones sold. So, we calculate the cost of goods sold for the year as follows: 
Beginning inventory: 120 units x $10 = $1,200
Purchases:
- 160 units x $12 = $1,920 (first purchase)
- 200 units x $14 = $2,800 (second purchase)
Total cost of goods available for sale: $5,920
Cost of goods sold: 
- 200 units sold x $14 (cost of last purchase) = $2,800
- 80 units x $12 (cost of first purchase remaining) = $960
Total cost of goods sold = $3,760
To calculate net income, we subtract the cost of goods sold from the sales revenue:
Net sales revenue: 560 units x $20 = $11,200
Net income: $11,200 - $3,760 = $7,440
However, the question asks for the net income only if LIFO is elected. LIFO results in a higher cost of goods sold (using last purchase costs) and therefore a lower net income. So, we need to recalculate the net income using the LIFO cost of goods sold:
Net income using LIFO: $11,200 - ($200 x $14 + $120 x $12) = $11,200 - $3,880 = $7,320
Therefore, the correct answer is B ($264), as this is the difference between the net income calculated using FIFO and the net income calculated using LIFO.

What Is Nueva's Net Income If It Elects LIFO