Timmon's Bakery completed its first year of operations and must select the generally accepted accounting principles it will use in the preparation of its financial statements. Depending on the following alternative accounting principles selected, either of the two net income figures could result.

Required:

a. Which financial statement fairly reflects the results of operations for the year?

b. Can an auditor express an opinion as to the fairness of financial statements with such varying net incomes? If so, justify the reasons. If not, indicate why an opinion cannot be expressed.

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Net Income (Loss) Accounting principles Inventories Depreciation Pension cost $250,000 A First-in, first-out method Straight-line method Prior service cost amortized over 40 years ($100,000) B Last-in, first-out method Declining-balance method Prior service cost amortized over 10 years