npbell Manufacturing Company (CMC) was started when it acquired $80,000 by issuin rations, the company incurred specifically identifiable product costs (materials, labor, incurred $60,000 of engineering design and planning costs. There was a debate reg uld be classified. Advocates of Option 1 believe that the costs should be classified as ocates of Option 2 believe it is more appropriate to classify the design and planning o de 5,000 units of product and sold 4,000 units at a price of $35 each. All transactions quired Prepare a GAAP-based income statement and balance sheet under option 1. Prepare a GAAP-based income statement and balance sheet under option 2. Identify the option that results in financial statements that are more likely to leave a fa creditors. Assume that CMC provides an incentive bonus to the company president equal to 20
npbell Manufacturing Company (CMC) was started when it acquired $80,000 by issuin rations, the company incurred specifically identifiable product costs (materials, labor, incurred $60,000 of engineering design and planning costs. There was a debate reg uld be classified. Advocates of Option 1 believe that the costs should be classified as ocates of Option 2 believe it is more appropriate to classify the design and planning o de 5,000 units of product and sold 4,000 units at a price of $35 each. All transactions quired Prepare a GAAP-based income statement and balance sheet under option 1. Prepare a GAAP-based income statement and balance sheet under option 2. Identify the option that results in financial statements that are more likely to leave a fa creditors. Assume that CMC provides an incentive bonus to the company president equal to 20
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Depreciation Accounting
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
Transcribed Image Text:Campbell Manufacturing Company (CMC) was started when it acquired $80,000 by issuing common stock. During the first year of
operations, the company incurred specifically identifiable product costs (materials, labor, and overhead) amounting to $75,000. CMC
also incurred $60,000 of 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 costs 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, CMC
made 5,000 units of product and sold 4,000 units at a price of $35 each. All transactions were cash transactions.
Required
a-1. Prepare a GAAP-based income statement and balance sheet under option 1.
a-2. Prepare a GAAP-based income statement and balance sheet under option 2.
b. Identify the option that results in financial statements that are more likely to leave a favorable impression on investors and
creditors.
c. Assume that CMC provides an incentive bonus to the company president equal to 20 percent of net income. Compute the amount
of the bonus under each of the two options. Identify the option that provides the president with the higher bonus.
d. Assume a 30 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.

Transcribed Image Text:Complete this question by entering your answer in the tabs below.
Req A1 Inc
Stmt
Req A2 Inc
Stmt
Req A2 Bal
Sheet
Req A1 Bal
Req B
Req C
Req D
Sheet
Prepare a GAAP-based income statement for Option 1.
CAMPBELL MANUFACTURING COMPANY
Income Statement
$
< Req A1 Inc Stmt
Req A1 Bal Sheet >
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