Final answer:
In a deflationary environment, the LIFO (Last In, First Out) inventory cost flow method will produce the highest income and asset values.
Step-by-step explanation:
In a deflationary environment, the inventory cost flow method that will produce the highest income and asset values is the LIFO (Last In, First Out) method.
This is because LIFO assumes that the most recently acquired inventory is sold first, which means that the cost of replacing inventory would be lower in a deflationary environment. As a result, the cost of goods sold would be lower, leading to higher income and asset values.
For example, if a company acquired inventory at a higher cost and then the prices of those goods decreased due to deflation, using LIFO would allow the company to value its inventory at the lower replacement cost, reducing the cost of goods sold and increasing income and asset values.