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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Marks Corporation has two operating departments, Drilling and Grinding, and an office. The three categories of office expenses are allocated to the two departments using different allocation bases. The following information is available for the current period: Office Expenses Total Allocation Basis Salaries $40,000 Number of employees Depreciation Advertising 26,000 Cost of goods sold 60,000 Net sales Item Drilling Grinding Total Number of employees 1,800 2,700 4,500 Net sales $352,000 $528,000 $880,000 Cost of goods sold $110,200 $179,800 $290,000 The amount of depreciation that should be allocated to Grinding for the current period is: Multiple Choice $37,200. $26,000.
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