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1.
Operating income includes any income that comes from outside sources.
False. Outside sources are not part of the operating income equation.
2.
SONAR identifies the earnings on a balance sheet.
True. The acronym includes the first letters of the earnings components.
3.
What is a companys gross profit on sales if it earned $10 million in sales and spent $6 million on producing goods?
$4 million. To calculate gross profit on sales, simply subtract cost of goods sold from sales.
4.
The formula for net earnings includes interest expense. Interest expense is _______.
The amount of interest the company pays to its creditors. This figure includes all creditors.
5.
What must be subtracted from sales to arrive at gross profits on sales?
Cost of goods sold. Cost of goods sold is the price the company paid to produce the goods. When subtracted from sales, gross profits on sales is the result.
6.
Suppose that the company Edu.gov.com had $4 million in operating income last year. Suppose that all of its other income was $1 million, and it paid $1 million in taxes. What are Edu.gov.coms earnings before interest and taxes?
$5 million. Taxes do not count!
7.
Imagine that last year, the new company Vitamin$.com paid $100,000 in dividends to its shareholders. Its net earnings were $1,000,000. What are the companys retained earnings?
$900,000. Retained earnings are net earnings minus dividends.