1. a-1. Prepare a GAAP-based income statement and balance sheet under option 1.

2. a-2. Prepare a GAAP-based income statement and balance sheet under option 2.

3. b. Identify the option that results in financial statements that are more likely to leave a favorable impression on investors and creditors.

4. c. Assume that CMC provides an incentive bonus to the company president equal to 12 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.

5. d. Assume a 40 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 companys income tax expense.

Antioch Company makes eBook readers. The company had the following amounts at the beginning of 2018: Cash, $675,000; Raw Materials Inventory, $70,000; Work in Process Inventory, $29,000; Finished Goods Inventory, $61,000; Common Stock, $592,000, and Retained Earnings, $243,000. Antioch experienced the following accounting events during 2018. Other than the adjusting entries for depreciation, assume that all transactions are cash transactions. 1. Paid $33,000 of research and development costs. 2. Paid $57,000 for raw materials that will be used to make eBook readers. 3. Placed $89,000 of the raw materials cost into the process of manufacturing eBook readers. 4. Paid $69.000 for salaries of selling and administrative employees. 5. Paid $103,000 for wages of production workers. 6. Paid $139,000 to purchase equipment used in selling and administrative offices. 7. Recognized depreciation on the office equipment. The equipment was acquired on January 1, 2018. It has a $19,000 salvage value and a six-year life. The amount of depreciation is computed as [(Cost - salvage) = useful life). Specifically, ($139,000 - $19,000) = 6 = $20,000. 8. Paid $155,000 to purchase manufacturing equipment. 9. Recognized depreciation on the manufacturing equipment. The equipment was acquired on January 1, 2018. It has a $22,000 salvage value and a seven-year life. The amount of depreciation is computed as [(Cost - salvage) = useful life]. Specifically, ($155,000 - $22,000) = 7 = $19,000. 10. Paid $49,000 for rent and utility costs on the manufacturing facility. 11. Paid $79,000 for inventory holding expenses for completed eBook readers (rental of warehouse space, salaries of warehouse personnel, and other general storage cost). 12. Completed and transferred eBook readers that had total cost of $246,000 from work in process inventory to finished goods. 13. Sold 830 eBook readers for $435,000. 14. It cost Antioch $166,000 to make the eBook readers sold in Event 13. ANTIOCH COMPANY Financial Statements Model = Stockholders' Equity Income Statement Event No. Raw Materials Cash Assets Work in Finished + Process Inventory Goods 29,000 + 61,000+ Office Furniture Manufacturing Equipment Common Stock Statement of Cash Flow Retained Earnings Revenue Expense = Net Income 675,000 + 70,000+ 592,000 + 243,000 Total 675,000 + 70.000 + 29,000 + 61.000 + 592,000 + 243,000 Antioch Company makes eBook readers. The company had the following amounts at the beginning of 2018: Cash, $675,000; Raw Materials Inventory, $70,000; Work in Process Inventory, $29,000; Finished Goods Inventory, $61,000; Common Stock, $592,000, and Retained Earnings, $243,000. Antioch experienced the following accounting events during 2018. Other than the adjusting entries for depreciation, assume that all transactions are cash transactions. 1. Paid $33,000 of research and development costs. 2. Paid $57,000 for raw materials that will be used to make eBook readers. 3. Placed $89,000 of the raw materials cost into the process of manufacturing eBook readers. 4. Paid $69.000 for salaries of selling and administrative employees. 5. Paid $103,000 for wages of production workers. 6. Paid $139,000 to purchase equipment used in selling and administrative offices. 7. Recognized depreciation on the office equipment. The equipment was acquired on January 1, 2018. It has a $19,000 salvage value and a six-year life. The amount of depreciation is computed as [(Cost - salvage) = useful life). Specifically, ($139,000 - $19,000) = 6 = $20,000. 8. Paid $155,000 to purchase manufacturing equipment. 9. Recognized depreciation on the manufacturing equipment. The equipment was acquired on January 1, 2018. It has a $22,000 salvage value and a seven-year life. The amount of depreciation is computed as [(Cost - salvage) = useful life]. Specifically, ($155,000 - $22,000) = 7 = $19,000. 10. Paid $49,000 for rent and utility costs on the manufacturing facility. 11. Paid $79,000 for inventory holding expenses for completed eBook readers (rental of warehouse space, salaries of warehouse personnel, and other general storage cost). 12. Completed and transferred eBook readers that had total cost of $246,000 from work in process inventory to finished goods. 13. Sold 830 eBook readers for $435,000. 14. It cost Antioch $166,000 to make the eBook readers sold in Event 13. ANTIOCH COMPANY Financial Statements Model = Stockholders' Equity Income Statement Event No. Raw Materials Cash Assets Work in Finished + Process Inventory Goods 29,000 + 61,000+ Office Furniture Manufacturing Equipment Common Stock Statement of Cash Flow Retained Earnings Revenue Expense = Net Income 675,000 + 70,000+ 592,000 + 243,000 Total 675,000 + 70.000 + 29,000 + 61.000 + 592,000 + 243,000