Question

Bernie Corp. uses the FIFO inventory method to calculate the cost of goods sold for financial reporting purposes. Which of the following methods can Bernie use for tax purposes?

A. FIFO and weighted-average only
B. LIFO and FIFO only
C. LIFO, FIFO, or weighted-average

Answer 1

Bernie Corp. can use LIFO, FIFO, or weighted-average inventory valuation methods for tax purposes, as long as the chosen method is consistent and adheres to IRS guidelines and GAAP.

Step-by-step explanation:

Bernie Corp. is using the FIFO (First-In, First-Out) inventory method for financial reporting purposes. For tax purposes, a company can often choose between different inventory valuation methods. The main methods include FIFO, LIFO (Last-In, First-Out), and the weighted-average method. The Internal Revenue Service (IRS) allows businesses to use any consistent inventory costing method that is clearly reflected in their income and conforms to generally accepted accounting principles (GAAP), unless a specific method is required by the Internal Revenue Code.

Therefore, the correct answer to the student's question is C. LIFO, FIFO, or weighted-average. Any of these methods can be used for tax purposes as long as it is applied consistently and follows the guidelines set forth by the IRS and GAAP.