Perez Manufacturing Company was started when it acquired $93,000 by issuing common stock. During the first year of operations, the company incurred specifically identifiable product costs (materials, labor, and overhead) amounting to $73,500. PMC also incurred $63,700 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, they made 4,900 units of product and sold 4,100 units at a price of $36.00 each. All transactions were cash transactions 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

Perez Manufacturing Company was started when it acquired $93,000 by issuing common stock. During the first year of operations, the company incurred specifically identifiable product costs (materials, labor, and overhead) amounting to $73,500. PMC also incurred $63,700 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, they made 4,900 units of product and sold 4,100 units at a price of $36.00 each. All transactions were cash transactions 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

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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