Cooke Manufacturing Company (CMC) was started when it acquired $49,000 by issuing common stock. During the first year of operations, the company incurred specifically identifiable product costs (materials, labor, and overhead) amounting to $24,880. CMC also incurred $15,600 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 4,400 units of product and sold 3,700 units at a price of $24.00 each. All transactions were cash transactions.
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Prepare an income statement and a balance sheet under each of the two options. (Be sure to list the assets and liabilities in order of their liquidity. Leave no cells blank - be certain to enter "0" wherever required. Amounts to be deducted and loss amounts should be indicated with minus sign. Do not round intermediate calculations and round your final answers to nearest dollar amount. Omit the "$" sign in your response.)
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Assume that CMC provides an incentive bonus to the company president equal to 15 percent of net income. Compute the amount of the bonus under each of the two options.(Omit the "$" sign in your response.)
Bonus under option no. 1 $
Bonus under option no. 2 $
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Assume a 40 percent income tax rate. Determine the amount of income tax expense under each of the two options. (Omit the "$" sign in your response.)
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| Income tax expense under option no. 1 |
$ |
| Income tax expense under option no. 2 |