1. Demonstration Problem
Accounting
What the Numbers Mean 6e
Demonstration Problem
Chapter 9 – Problem 18
Calculate Operating Income and Net Income

2. Problem Definition
The following information is available from the accounting records of Spenser Co. for the year ended December 31, 2004:
Selling, general and administrative expenses $ 51,000
Accounts payable ,000
Extraordinary gain from early retirement of bonds,
net of tax expense of $28, ,000
Research and development expense ,000
Loss from discontinued operations,
net of tax savings of $5, ,000
Provision for income taxes ,000
Net sales ,000
Interest expense ,000
Net cash provided by operations ,000
Cost of goods sold ,000

3. Problem Definition
Calculate the operating income for Spenser Co. for the year ended December 31, 2004.
Calculate the company’s net income for 2004.

4. Problem Solution
a. Net sales $579,000

5. Problem Solution
a. Net sales $579,000
Cost of goods sold (272,000)

6. Problem Solution
a. Net sales $579,000
Cost of goods sold (272,000)
Gross profit $307,000

7. Problem Solution
a. Net sales $579,000
Cost of goods sold (272,000)
Gross profit $307,000
Selling, general and administrative expense (51,000)

8. Problem Solution
a. Net sales $579,000
Cost of goods sold (272,000)
Gross profit $307,000
Selling, general and administrative expense (51,000)
Research and development expenses (37,000)

9. Problem Solution
a. Net sales $579,000
Cost of goods sold (272,000)
Gross profit $307,000
Selling, general and administrative expense (51,000)
Research and development expenses (37,000)
Operating income (or Income from operations) $219,000

10. Problem Definition
Calculate the operating income for Spenser Co. for the year ended December 31, 2004.
Calculate the company’s net income for 2004.

11. Problem Solution
b. Operating income (or Income from operations) $219,000

12. Problem Solution
b. Operating income (or Income from operations) $219,000
Interest expense (64,000)

13. Problem Solution
b. Operating income (or Income from operations) $219,000
Interest expense (64,000)
Income from continuing operations before taxes $155,000

14. Problem Solution
b. Operating income (or Income from operations) $219,000
Interest expense (64,000)
Income from continuing operations before taxes $155,000
Provision for income taxes (74,000)

15. Problem Solution
b. Operating income (or Income from operations) $219,000
Interest expense (64,000)
Income from continuing operations before taxes $155,000
Provision for income taxes (74,000)
Income from continuing operations $ 81,000

16. Problem Solution
b. Operating income (or Income from operations) $219,000
Interest expense (64,000)
Income from continuing operations before taxes $155,000
Provision for income taxes (74,000)
Income from continuing operations $ 81,000
Loss from discontinued operations,
net of tax savings of $5, (16,000)

17. Problem Solution
b. Operating income (or Income from operations) $219,000
Interest expense (64,000)
Income from continuing operations before taxes $155,000
Provision for income taxes (74,000)
Income from continuing operations $ 81,000
Loss from discontinued operations,
net of tax savings of $5, (16,000)
Earnings from extraordinary item $ 65,000

18. Problem Solution
b. Operating income (or Income from operations) $219,000
Interest expense (64,000)
Income from continuing operations before taxes $155,000
Provision for income taxes (74,000)
Income from continuing operations $ 81,000
Loss from discontinued operations,
net of tax savings of $5, (16,000)
Earnings from extraordinary item $ 65,000
Extraordinary gain from early retirement of
bonds, net of tax expense of $28, ,000

19. Problem Solution
b. Operating income (or Income from operations) $219,000
Interest expense (64,000)
Income from continuing operations before taxes $155,000
Provision for income taxes (74,000)
Income from continuing operations $ 81,000
Loss from discontinued operations,
net of tax savings of $5, (16,000)
Earnings from extraordinary item $ 65,000
Extraordinary gain from early retirement of bonds,
net of tax expense of $28, ,000
Net income $169,000

20. Accounting What the Numbers Mean 6e David H. Marshall Wayne W. McManus
You should now have a better understanding of how to calculate operating income and net income.
Remember that there is a demonstration problem for each chapter that is here for your learning benefit.
David H. Marshall
Wayne W. McManus
Daniel F. Viele