Asked by Harsh Shrivastava on May 23, 2024
Verified
The LIFO conformity rule states that
A) if LIFO is used for tax purposes,the external financial statements must also use LIFO.
B) if FIFO is used for tax purposes,the external financial statements must also use FIFO.
C) if LIFO is used for tax purposes,the external financial statements must also use FIFO.
D) if FIFO is used for tax purposes,the external financial statements must also use LIFO.
LIFO Conformity Rule
A tax regulation requiring companies that use the last-in, first-out (LIFO) inventory method for tax reporting to also use it for financial reporting purposes.
Tax Purposes
Refers to any considerations made in financial activities or decision-making to optimize tax liabilities.
Financial Statements
Formal records of the financial activities and condition of a business, entity, or individual.
- Gain insight into the fiscal impacts and merits of employing the Last In, First Out (LIFO) method for inventory valuation.
Verified Answer
MM
Michaela MasonMay 27, 2024
Final Answer :
A
Explanation :
The LIFO conformity rule states that if a company uses LIFO (Last-In-First-Out) inventory accounting method in its tax returns, it must also use LIFO for its external financial reporting purposes. This rule is designed to ensure consistency between a company's reporting for tax purposes and its reporting for financial statement purposes. Therefore, option A is the correct answer. Option B, C, and D are incorrect as they do not align with the LIFO conformity rule.
Learning Objectives
- Gain insight into the fiscal impacts and merits of employing the Last In, First Out (LIFO) method for inventory valuation.