Question

Iris, Inc. uses FIFO for financial reporting purposes and LIFO for its income tax return. Iris' accounting treatment of its inventory is _________.

1) not in accordance with the LIFO conformity rule
2) in conformity with IFRS
3) in conformity with the IRS tax code

Answer 1

Iris, Inc.'s use of FIFO for financial reporting and LIFO for tax purposes is not in line with the LIFO conformity rule, which states that the same inventory accounting method should be used for both financial reporting and tax returns.

Step-by-step explanation:

The accounting treatment of Iris, Inc. using FIFO for financial reporting and LIFO for income tax purposes is not in accordance with the LIFO conformity rule. The LIFO conformity rule, as required by the Internal Revenue Service (IRS), states that if LIFO is used on a company's tax return, it must also be used in financial statements. However, Iris, Inc. is using FIFO for financial reporting, which is not in compliance with the LIFO conformity rule.

Moreover, it is important to note that IFRS (International Financial Reporting Standards) does not permit the use of LIFO at all. Therefore, Iris, Inc.’s use of FIFO for financial reporting could be in line with IFRS, but their use of LIFO for tax purposes would not be. Lastly, Iris, Inc.'s practice of using LIFO for its income tax return is in conformity with the IRS tax code, which allows LIFO for tax calculations.