Rundle Manufacturing Company (CMC) was started when it acquired $91,000 by issuing common stock. During the first year of operations, the company incurred specifically identifiable product costs (materials, labor, and overhead) amounting to $75,000. CMC also incurred $80,000 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, CMGC made 5,000 units of product and sold 4,300 units at a price of $36.00 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 financial statements that are more likely to leave a favorable impression on investors and c.Assume that CMC provides an incentive bonus to the company president equal to 11 percent of net income. Compute the amount d. Assume a 35 percent income tax rate. Determine the amount of income tax expense under each of the two options. Identify the creditors of the bonus under each of the two options. Identify the option that provides the president with the higher bonus option that minimizes the amount of the company's income tax expense Required A1 Required A1 Required A2 Required A2 Required B Required C Required D Inc Stmt Bal Inc Stmt Bal Prepare a GAAP-based income statement for Option 1. RUNDLE MANUFACTURING COMPANY Income Statement Required A1 Inc Stmt Required A1 Bal > Required A1 Required A1Required A2 Required A2 Required B Required CRequired D Inc Stmt Bal Inc Stmt Bal Prepare a balance sheet for Option 1. RUNDLE MANUFACTURING COMPANY Balance Sheet Assets Total assets Equity Total equity Required A1 Inc Stmt Required A2 Inc Stmt> Required A1 Required A1 Required A2 E Required A2 Required B Required C Required D Inc Stmt Bal Inc Stmt Bal Prepare a GAAP-based income statement for Option 2. RUNDLE MANUFACTURING COMPANY Income Statement Required A1 Bal Required A2 Bal> Required A1 Inc Stmt Required A1 Bal Required A2Required A2 Required B Required C Required D Inc Stmt Bal Prepare a balance sheet for Option 2. RUNDLE MANUFACTURING COMPANY Balance Sheet Assets Total assets Equity Total equity Required A2 Inc Stmt Required B > Required A1 Required A1Required A2 Required A2 Bal Required BRequired C Required D Inc Stmt Bal Inc Stmt Identify the option that results in financial statements that are more likely to leave a favorable impression on investors creditors. he option most favorable to investors and creditors Required A2 Bal RequiredC > Required A1 Inc Stmt Required A1Required A2 Required A2 Bal Required BRequired C Required D Bal Inc Stmt Assume that CMC provides an incentive bonus to the company president equal to 11 percent of net income amount of the bonus under each of the two options. Identify the option that provides the president with the 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 Required B RequiredD > Required A2 Bal Required A1 Required A1Required A2 R Required B Required C Required D Inc Stmt Bal Inc Stmt Assume a 35 percent income tax rate. Determine the amount of income tax expense under each of the two op the option that minimizes the amount of the company's income tax expense. (Round your answers to the near 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 Required C Required D
