Three retailing giants, Best Buy Co., Inc. (NYSE: BBY), Amazon.com, Inc., (NASDAQ: AMZN), and Target Corporation (NYSE: TGT) each use a different inventory costing method. Best Buy uses weighted-average cost, Amazon uses FIFO, and Target uses LIFO. As you will see from the hypothetical example below, the use of a different inventory costing method will lead to differences in income statements and balance sheets.
Best Buy, Amazon, and Target sell a popular shirt for $33. Let’s assume that all three companies have the same sale and inventory purchase pattern for the same period.
Beginning inventory: 30,000 @ $10.00
Purchases: 20,000 @ $15.00
Ending inventory: 10,000

Which company will save the most on income taxes? (hint: the less income you report, the less income tax you pay)

A. Best Buy
B. Amazon
C. Target
D. The tax bill will be the same for all of the companies since they sold the same number of shirts for the same price as well as they paid the same price for their inventory.

Answer rating: 100% (QA)

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