Final answer:
The correct answer is A, as the accelerated depreciation method results in lower net income for Company A in the early years due to higher expenses.The correct answer is option a.
Step-by-step explanation:
When comparing the effect of different depreciation methods on net income, it's crucial to understand how each method allocates the cost of an asset over its useful life. The accelerated depreciation method, used by Company A, expedites the recognition of depreciation expense in the early years of the asset's life, resulting in higher expenses and, therefore, lower net income during those years. Conversely, the straight-line method, used by Company B, spreads the cost evenly over the life of the asset, resulting in a consistent annual depreciation expense.
In the initial years, Company B will show a higher net income compared to Company A because the straight-line method results in lower depreciation expenses initially. As time goes on and the accelerated method's expense decreases, Company A will exhibit a higher net income toward the end of the asset's useful life when compared to Company B, whose depreciation expense remains constant until the end of the asset's useful life. Thus, the correct answer is: A. Company B will have higher net income in the early years, but Company A will have higher net income towards the end of the asset's useful life.