Jordan manufacturing company (JMC) was started when it acquired $98000 by issuing common stock. During the first year of operations, the company incurred specifically identifiable products cost (material, labor, and overhead) amounting to $56,400. JMC also incurred $75,200 in engineering design and planning costs. There was a debate regarding how the design and planning costs should be classified. advocates of option 1 believe that the cost should be classified as general, selling, and administrative costs. advocates of option 2 believe it is more appropriate to classify the design and planning costs as product costs. during the year, JMC made 4700 units of product and sold 3900 units for $39.00 each. All transactions were cash transactions. Required 1)prepare a GAAP-based income statement and balance sheet under option 1. 2)prepare a GAAP-based income statement and balance sheet under option 2 3) Identify the option that results in financial statements that are more likely to leave a favorable impression on investors and creditors. C) Assume that JMC provides an incentive bonus to the company president equal to 14 percent of net income. Compute the amount of the bonus under each of the two options. Identify the option that provides the president with a higher bonus. d) Assume a 35 percent income tax rate. Determine the amount of income tax expense under each of the two options. Identify the option that minimizes the amount of the company's income tax expense.
Jordan manufacturing company (JMC) was started when it acquired $98000 by issuing common stock. During the first year of operations, the company incurred specifically identifiable products cost (material, labor, and overhead) amounting to $56,400. JMC also incurred $75,200 in engineering design and planning costs. There was a debate regarding how the design and planning costs should be classified. advocates of option 1 believe that the cost should be classified as general, selling, and administrative costs. advocates of option 2 believe it is more appropriate to classify the design and planning costs as product costs. during the year, JMC made 4700 units of product and sold 3900 units for $39.00 each. All transactions were cash transactions.
Required
1)prepare a GAAP-based income statement and
2)prepare a GAAP-based income statement and balance sheet under option 2
3) Identify the option that results in financial statements that are more likely to leave a favorable impression on investors and creditors.
C) Assume that JMC provides an incentive bonus to the company president equal to 14 percent of net income. Compute the amount of the bonus under each of the two options. Identify the option that provides the president with a higher bonus.
d) Assume a 35 percent income tax rate. Determine the amount of income tax expense under each of the two options. Identify the option that minimizes the amount of the company's income tax expense.
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