Blocher Company is evaluating the following methods of accounting for depreciation of long-lived assets and inventory:...

Blocher Company is evaluating the following methods of accounting for depreciation of long-lived assets and inventory:

Depreciation: straight-line; double-declining balance (DDB)
Inventory: first in, first out (FIFO); last in, first out (LIFO)

Assuming a deflationary environment (prices are falling), which of the following combinations will result in the highest net income in year 1?

Group of answer choices

A) DDB; FIFO.

B) Straight-line; LIFO.

C) Straight-line; FIFO.

Solutions

Expert Solution

Option B) Straight-line; LIFO.

During deflationary periods , the depreciation will be lower in straight line than DDB in the initial years and LIFO will result in lower cost of goods sold and a higher income.

jeff jeffy answered 2 years ago

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