Question

Which of the following statements is true?

A. GAAP requires consistency b/t the cost flow method used for financial reporting and that used for tax reporting.
B. LIFO may be the preferred cost flow method even when it results in lower reported income and asset values.
C. Companies that use FIFO for physical flow must use FIFO for cost flow, regardless of tax consequences.

Answer 1

The correct statement is that LIFO may be the preferred cost flow method even when it results in lower reported income and asset values.

Step-by-step explanation:

The correct statement among the given options is B. LIFO may be the preferred cost flow method even when it results in lower reported income and asset values.

Under Generally Accepted Accounting Principles (GAAP), consistency between the cost flow method used for financial reporting and that used for tax reporting is not required, making option A incorrect.

Option C is also incorrect because companies that use the First-In-First-Out (FIFO) method for physical flow can choose a different cost flow method for financial reporting based on tax consequences.