Campbell Manufacturing Company (CMC) was started when it acquired $99,000 by Issuing common stock. During the first year of operations, the company incurred specifically identifiable product costs (materials, labor, and overhead) amounting to $54,600. CMC also incurred $67,200 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 4,200 units of product and sold 3,300 units at a price of $37.00 each. All transactions were cash transactions. eBook Required a-1. Prepare an income statement and balance sheet under option 1. a-2. Prepare an 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 13 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 35 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. Complete this question by entering your answer in the tabs below. Required A1 Inc Stmt Required A1 Bal Required A2 Inc Stmt Required A2 Bal Required B Required C Required D Prepare a balance sheet for Option 1. CAMPBELL MANUFACTURING COMPANY Balance Sheet Assets Total assets Equity | Total equity Complete this question by entering your answer in the tabs below. Required A1 Inc Stmt Required A1 Required A2 Inc Stmt Required A2 Bal Required B Required C Required D Prepare a GAAP-based Income statement for Option 2. CAMPBELL MANUFACTURING COMPANY Income Statement Complete this question by entering your answer in the tabs below. Required A1 Inc Stmt Required A1 Required A2 Inc Stmt Required A2 Bal Bal Required B Required D Required C Prepare a balance sheet for Option 2. CAMPBELL MANUFACTURING COMPANY Balance Sheet Assets Total assets Equity Total equity Complete this question by entering your answer in the tabs below. Required A1 Inc Stmt Required A1 Required A2 Inc Stmt Required A2 Required B Bal Required C Bal Required D Identify the option that results in financial statements that are more likely to leave a favorable impression on investors and creditors. The option most favorable to investors and creditors Complete this question by entering your answer in the tabs below. Required A1 Inc Stmt Required A1 Bal Required A2 Required A2 Inc Stmt Required B Required C Required D Bal Assume that CMC provides an incentive bonus to the company president equal to 13 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. (Round your answers to the nearest whole dollar.) Option no. 1 bonus Option no. 2 bonus The option that provides the president with the higher bonus Complete this question by entering your answer in the tabs below. Required A1 Inc Stmt Required A1 Bal Required A2 Inc Stmt Required A2 Required B Bal Required C Required D Assume a 35 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. (Round your answers to the nearest whole dollar.) Option no. 1 income tax expense Option no. 2 income tax expense The option that minimizes the amount of the company's income tax expense
