Question

Need help answering this problem for the balance sheet- cash is wrong and can’t figure it out.

Walton 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 $69,000. CMC also incurred $55,200 of engineering design and planning costs. There was a debate regarding how the design and planning costs should be classified. Advocates of Option 1 belleve 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 4,600 units of product and sold 3,900 units at a price of $35.00 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 option2 b. Identify the option that results in financial statements that are more likely to leave a favorable impression on investors and e. 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.

Answer 1

Answer:

Option 1
Amount in USD
Particulars	Dr.	Cr.
Cash	91000
Common stock		91000
			nos	Cost/unit
Product costs	69000		4600	15
Vendor		69000
General, selling and admin cost	55200
Vendor		55200
			nos	Sale/unit
Cash	136500		3900	35
Sales		136500
Inventory	10500		700	15
Change in stock		10500
Cost of goods sold	58500		3900	15
product costs		58500
Vendor	124200
Cash		124200
Income statement
Particulars	USD
Sales	136500
Less: cost of goods sold	58500
Gross Profit	78000
Less:
General, selling and admin cost	55200
Net income	22800
Balance sheet
Assets	USD
Cash	103300
Inventory	10500
	113800
Liabilities
Common stock	91000
Retained earnings	22800
	113800

Option 2
Amount in USD
Particulars	Dr.	Cr.
Cash	91000
Common stock		91000
			nos	Cost/unit
Product costs	69000		4600	15
Vendor		69000
Product costs	55200		4600	12
Vendor		55200
			nos	Sale/unit
Cash	136500		3900	35
Sales		136500
Inventory	18900		700	27
Change in stock		10500
Cost of goods sold	105300		3900	27
product costs		58500
Vendor	124200
Cash		124200
Income statement
Particulars	USD
Sales	136500
Less: cost of goods sold	105300
Gross Profit	31200
Less:
General, selling and admin cost	0
Net income	31200
Balance sheet
Assets	USD
Cash	103300
Inventory	18900
	122200
Liabilities
Common stock	91000
Retained earnings	31200
	122200