Question

Need help answering these problems the ones that are wrong are marked with an x.

Check my work mode: This shows whet is correct or incorrect for the work you have completed so far. lt does not indicat 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 believe that the costs should be classified as general, selling, and administrative costs Advocates of Option 2 believe it is more appropriate to classifythe design and planning costs as product costs. During the year, CC 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 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.

Answer 1

Dear Student, all answers seems to be correct. There are no such answers marked with X.

Explanation for answers:

1 & 2-a) Under Option 1,

Total Production Cost = $69000, Cost per Unit = $69000/4600 units = $15

Production Cost for units Sold = 3900*$15 = $58500, Further Selling & General cost is taken as a whole amounting $55200 .

Hence Total Cost for units sold becomes $58500 +$55200 = $1137500

Under Option 2,

Total Production Cost = $69000 + $55200 = $124200, Cost per Unit = $124200/4600 units = $27

Total Cost for units Sold = 3900*$27 = $105300

2-b) Due to increased total cost of units sold as explained above Option 1 shows Net income of $22800 whereas that of option 2 is $31200 only due to lower total cost of units sold. Therefore, Option 2 is assumed to be more likely to have favorable impression on investors.

2-c) Obviously more net income will provide more bonus to director as % of bonus in both the option is same i.e. 11% .

Option 2 will provide bonus of $3432= $31200*11%

2-d) Option 1 minimizes the amount of income tax as it shows lower net income than option 2.

Therefore net income tax under option 1 is $7980 = $22800*35% .