DQ 1. The controller of Sagehen Enterprises believes that the company should switch from the LIFO method to the FIFO method. The controllers bonus is based on the next income. It is the controllers belief that the switch in inventory methods would increase the net income of the company. What are the differences between the LIFO and FIFO methods?
DQ 2. A variety of depreciation methods are used to allocate the cost of an asset to all of the accounting periods benefited by the use of the asset. Your client has just purchased a piece of equipment for $100,000. Explain the concept of depreciation. Which of the following depreciation methods would you recommend: straight-line depreciation, double declining balance method, or an alternative method?
Reflect for a moment on the LIFO (Last in First Out) and FIFO (First in First Out) inventory methods. If you were starting a small manufacturing company, what inventory method do you believe would provide the most accurate financial statements? Why do you believe this is the case?