Statement 1: Magnesium burns in air with a dazzling white flame forming metal oxide.
Statement 2: Metals on reaction with water produce metal oxide along with oxygen.

The correct option is A Statement 1 is true and statement 2 is false.
Metals on reaction with oxygen produce metal oxide. Being a metal, magnesium burns in air with a dazzling white flame to form magnesium oxide.

Metals react with water to form metal hydroxide and hydrogen gas.

For example: Sodium reacts with cold water to form sodium hydroxide and hydrogen gas. This can be represented as:

$\text{Sodium}+\text{Water}\to \text{Sodium hydroxide}+\text{Hydrogen gas}$

Hence, only statement 1 is correct.