Final answer:
The true statement is that LIFO may be preferred for cost flow even if it results in lower reported income and assets, as it can reduce taxable income in times of inflation. GAAP does not require matching cost flow methods for financial and tax reporting, and physical inventory flow does not dictate the accounting cost flow method.
Step-by-step explanation:
The true statement among the options provided is 'a. LIFO may be the preferred cost flow method even when it results in lower reported income and asset values'.
LIFO (Last-In, First-Out) can be advantageous for companies because it may result in lower taxable income during times of inflation, as the cost of goods sold (COGS) is based on the most recent inventory costs, which are usually higher. This can lead to tax savings despite showing lower reported income and asset values compared to other inventory cost flow methods, such as FIFO (First-In, First-Out).
On the other hand, statement 'b' is incorrect because GAAP (Generally Accepted Accounting Principles) does not require that the cost flow method used for financial reporting must match the method used for tax reporting; rather, firms must be consistent in the application of their chosen method for financial reporting purposes. Statement 'c' is also incorrect as companies are not required to match their physical inventory flow (the actual movement of goods through the company) with their cost flow method, which is an accounting decision reflecting how costs are assigned to goods.