How would you react to an E2 who "smart mouths" you in formation?

Reply. It is your assignment. No argument.

Are they still in formation until subject in question has complied?

Simple...Article 15

Sand pile at location A, one bucket in hand 1 and one bucket in hand 2, relocate sand pile from location A to location B, using only the two buckets, an E Tool and your own strength....THEN, after the sand pile is moved, the Commander realizes that it is in the wrong place and needs to be relocated again. after moving 2 tons of sand two buckets at a time 4 or 5 times, you could order him to go find a left handed Torque Wrench with a camo handle and he will sound off with Yes, Sergeant

This answer seems cut and dried, as in that's what you do to this poor PFC's keister. Enlisted matter; don't bother the Officers and CERTAINLY don't bother the CO.

Very well. Moreover, I (as a Sr. Grade Officer) would understand this.

Now, here's where I would like to go "above and beyond." PFC SelfHypnotizedImportantTurd (note acronym) has done what some of us in the business call "acting out." As a Sr. Ranking Officer (and very likely CO or Deputy) I become interested in the "Why's" of these things.

So, number one: I would like to know when such things happen in my unit. (Let's say I'm in the CO role, here)

Number two: I would like to know how it was handled (this is not to judge, simply to observe that the process was followed).

Number three, I would like to know if PFC SelfHypnotizedImportantTurd would like to consider a change of attitude. As an initial action, I would ask the opinion of the NCO leadership.

Number four, I would like to see if there was anything in PFC SelfHypnotizedImportantTurd's life that would trigger such behavior, and is there anything that could be done about it (one might be surprised).

Number five, I would like to know PFC SelfHypnotizedImportantTurd's intention regarding his career; does he want to continue in the US Armed Forces (anywhere, including the NG, etc.). Again, at this point I would get a report from the NCO leadership.

Number six, I would like to chat with NCO leadership about PFC SelfHypnotizedImportantTurd. This is not to make any judgements on this PFC, or the NCO leadership, but to simply gain some intel on the matter. As the CO, the entire unit is my responsibility; if something is happening that is causing PFC SelfHypnotizedImportantTurd's momentary insanity then I need to know, enlisted matter or not.

Number seven, I would want to review any/all corrective actions. Again, this is not to judge but to simply observe that the process was followed. Okay, I might judge if I think things could be done better, but (because it's an Enlisted matter) I would want to consult with the NCO leadership.

Number eight (finally), I would like to see if a chat with PFC SelfHypnotizedImportantTurd might produce any results. I would approach it matter-of-factly. No raised voices, no threats, no promises. Again, it's my job (as a CO) to see to the effectiveness of the entire unit; a "disturbance" of even one member is not too small a detail to ignore. The inputs of my NCO leaders would be fresh in my mind, and I could see about getting any insights into the situation. If PFC SelfHypnotizedImportantTurd wants a career change, it could be easily accommodated. If PFC SelfHypnotizedImportantTurd would like to continue with the DOD (it's a great career!) then I would like to see if some agreement could be reached. (Agreement, as in you need to cut this crap out or we'll cut your crap out of this unit. Sorry, not negotiating at this moment. Your unit supervisor will have some duties for you. Do them. We can chat later if that all works out.)

Well, as long as this assignment is not unethical amoral and is not in violation of any regulations, it’s a lawful order from an NCO. The private will face the consequences if he/she refuses to obey.
My first reaction will be: “Private, I thought that I was a little bit flexible on whom I was going to give this tasking to, but thank you for volunteering. I will give him/her the 5W’s and move on. If SM fails to obey, I will write his negative counseling and begin with his/her chapter process though the chain of command.

Remove him from the formation. Leave him standing, far enough away that he can’t be heard. Leave him there until you have completed the formation. Stay with him there until everyone else is gone. Leave him there while you talk to the 1Sg about his future in your Army. He should still be a formation of one. He is not to leave formation without first getting your approval..

"Drop and give me 50 push-ups"! Extra duty, maybe! Report this E2 to the ISG for an attitude adjustment!

What saddens me the most of this thread is that an NCO has to ask this question. Seriously. Not only did you let this turd disrespect you in front of other troops, you did nothing to make this E-2's disrespect painful. You lost a great deal of respect in everyone's eyes and that can have long-term consequences beyond the morning formation. When did we go from a professional service of leaders to a bunch of campfire sing along counselors with weapons? Have we so wimpified the service these days that this type of behavior is acceptable? Lord, help us, for we know not what we do. This says more about PVT Dumbasses sense of entitlement and your leadership than anything else. Gunny Pepper has it right. Nip it quick, nip it permanently and make it memorable for not only the young troop but for the rest of your team. The only thing I would add to what the Gunny has already said, was that the conversation should be had with the individual while they are in the front leaning rest position in front of everyone else and again after duty hours while they are swinging a mop, cleaning the head, or .........

Since I was an E-3, I'd smack the sh*t out of him! Then we'd go get a beer later.