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Problem 1-27A (Algo) Importance of cost classification LO 1-3, 1-6 Finch Manufacturing Company (CMC) was started when it acquired $98,000 by issuing common stock. During the first year of operations, the company incurred specifically identifiable product costs (materials, labor, and overhead) amounting to $58,500. CMC also incurred $81,000 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 4,500 units of product and sold 3,500 units at a price of $38.00 each. All transactions were cash transactions. 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 nancial 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 30 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. Req A1 Inc Req A1 Bal Req A2 Inc Req A2 Bal Sheet Stmt Sheet Req B Req c Req D Prepare a GAAP-based income statement for Option 1. Complete this question by entering your answer in the tabs below. Req Al Inc Req Al Bal Req A2 Inc Req A2 Bal Stmt Sheet Stmt Sheet Req B Req C Req D Prepare a GAAP-based income statement for Option 1. FINCH MANUFACTURING COMPANY Income Statement 0 0Complete this question by entering your answer in the tabs below. Complete this question by entering your answer in the tabs below. Req Al Inc Req Al Bal Req A2 Inc Req A2 Bal Stmt Sheet Stmt Sheet Req B Req C Req D Prepare a GAAP-based income statement for Option 2. FINCH MANUFACTURING COMPANY Income Statement 0 $ 0Complete this question by entering your answer in the tabs below. Req Al Inc Req Al Bal Req A2 Inc Req A2 Bal Stmt Sheet Stmt Sheet Req B Req C Req D Prepare a balance sheet for Option 2. FINCH MANUFACTURING COMPANY Balance Sheet Assets Total assets 0 Equity Total equity 0Complete this question by entering your answer in the tabs below. Req Al Inc Req Al Bal Req A2 Inc Req A2 Bal Stmt Sheet Stmt Sheet Req B Req C Req 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 creditorsComplete this question by entering your answer in the tabs below. Req A1 Inc Req A1 Bal Stmt Sheet 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. Req Al Inc Req Al Bal Req A2 Inc Req A2 Bal Stmt Sheet Stmt Sheet Req B Req C Req D Assume a 30 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