Which of the following combinations of accounting practices will lead to the highest reported earnings in an inflationary environment? $\text { Depreciation Method} \quad\quad \text {Inventory Method }$
A.$\text { Straight-line } \quad \quad\quad\quad\quad\quad\text { LIFO }$
B.$\text { Double-declining balance } \quad \text { LIFO }$
C.$\text { Straight-line} \quad\quad\quad\quad\quad\quad\quad\text { FIFO}$
D.$\text { Double-declining balance } \quad \text { FIFO }$

A)Option A
B)Option B
C)Option C
D)Option D

Question

Which of the following combinations of accounting practices will lead to the highest reported earnings in an inflationary environment? $\text { Depreciation Method} \quad\quad  \text {Inventory Method }$
A.$\text { Straight-line } \quad \quad\quad\quad\quad\quad\text { LIFO }$
B.$\text { Double-declining balance } \quad \text { LIFO }$
C.$\text { Straight-line} \quad\quad\quad\quad\quad\quad\quad\text { FIFO}$
D.$\text { Double-declining balance } \quad \text { FIFO }$

A)Option A
B)Option B
C)Option C
D)Option D

Quizplus · Accepted Answer

In an inflationary environment, the FIFO method of inventory valuation will result in a higher cost of goods sold and lower net income (Option A and Option B are eliminated). LIFO will result in a lower cost of goods sold and higher net income but will also result in higher taxes due to the temporary high income (Option D is eliminated). Therefore, the best choice would be to use the LIFO method for inventory valuation and depreciate assets using the accelerated method, which will result in a lower depreciation expense and higher net income.

Which of the Following Combinations of Accounting Practices Will Lead Depreciation MethodInventory Method \text { Depreciation Method} \quad\quad \text {Inventory Method } Depreciation MethodInventory Method

Which of the Following Combinations of Accounting Practices Will Lead $\text { Depreciation Method} \quad\quad \text {Inventory Method }$