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# Calculate the operating income for Spenser Co. dec 31 2010

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1. Mary owns a shoe store. She just received a shipment of new fashion shoes. These shoes cost \$45.00 a pair from the manufacturer. She wants to make a net profit of \$20.00 on each pair. By selling them at \$65.00 do you think she accomplishes her goal?

2. You are the public manufacturer of the shoes sold to Mary. There was a small fire in the factory followed by a union strike. Can you show any of these items as a loss and must you still pay your shareholders a dividend?

3. Where should the following expenses be listed?
- Product Warranty
- Social Security Cost Payable
- Medicare Tax Payable
- Employee Federal Income Tax Payable
- State Unemployment Tax Payable
- Federal Unemployment Tax Payable
- Wages
- Pension Plan Costs

4. Problem 9-17 - Calculate Operating Income and Net Income:
The following information is available from the accounting records of Manahan Co. for the year ended December 31, 2010.

Net cash provided by financing activities \$112,000
Dividends paid \$18,000
Extraordinary loss from flood, net of tax savings of \$35,000 \$105,000
Income tax expense \$26,000
Other selling expenses \$13,000
Net sales \$644,000
Accounts receivable \$62,000
Cost of goods sold \$368,000

A) Calculate the operating income for Manahan Co. for the year ended December 31, 2010.
B) Calculate the company's net income for 2010.

5. Problem 9-18 - Calculate Operating Income and Net Income:
The following information is available from the accounting records of Spenser Co. for the year ended December 31, 2010.

Selling, general, and administrative expenses \$51,000
Accounts payable \$85,000
Extraordinary gain from lawsuit settlement, net of tax expenses of \$28,000 \$104,000
Research and development expenses \$37,000
Loss from discontinued operations net of tax savings of \$5,000 \$16,000
Provision for income taxes \$74,000
Net Sales \$579,000
Interest expense \$64,000
Net cash provided by operations \$148,000
Cost of goods sold \$272,000

A) Calculate the operating income for Spenser Co. for the year ended December 31, 2010.
B) Calculate the company's net income for 2010.

#### Solution Preview

1. Mary owns a shoe store. She just received a shipment of new fashion shoes. These shoes cost \$45.00 a pair from the manufacturer. She wants to make a net profit of \$20.00 on each pair. By selling them at \$65.00 do you think she accomplishes her goal?

On an incremental basis, yet. Mary earns \$65.00 - \$45.00 = \$20.00 for each Ã¢Ã¢?Â¬Ã…"additionalÃ¢Ã¢?Â¬Ã‚? shoe she sells. However, Mary likely has costs other than just the \$45 she pays to get the shoes. She probably has store costs and advertising costs as an example. So, Mary has to sell a certain number of shoes to meet those costs before she will see profits at all. After that , each additional shoe she sells will yield \$20 per show in profit. To achieve an overall profit of \$20 per shoe sold, she may need to raise her prices so that the overhead costs of the store are also in the mark-up between the \$45 and what she charges customers.

2. You are the public manufacturer of the shoes sold to Mary. There was a small fire in the factory followed by a union strike. Can you show any of these items as a loss and must you still pay your shareholders a dividend?
The damage from the fire, if it is an uninsured loss (and so the costs are not reimbursed by the insurance company), is a loss reportable in the income statement in the period of the loss (even if not fixed ...

#### Solution Summary

your discussion for the first questions are 527 words in everyday language suitable for a novice. Your tutorial for A and B in the two income statement problems (in Excel attached, see tab for company) shows you a good form income statement leaving off the three items that do not belong (with a note about why they are left off).

\$2.49