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
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![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](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0e5798b3-8ad3-4f21-b982-e491448d6b5d%2F267737aa-7738-4614-9c6f-46202dd67fc1%2Fmuasioq_processed.jpeg&w=3840&q=75)
Transcribed Image Text: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
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