Analysis Intermediate: Understanding the Income Statement

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1.
EDIT identifies ________.
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Expenditures. Expenditures, when placed vertically and worded in a special way, will spell the acronym EDIT.
2.
The formula for net earnings includes interest expense. Interest expense is _______.
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The amount of interest the company pays to its creditors. This figure includes all creditors.
3.
A companys operating income is gross profit minus _______
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Depreciation and general operating expenses. Once sales, depreciation, and expenses are accounted for, one can see the success of the companys operations.
4.
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?
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$5 million. Taxes do not count!
5.
To calculate a companys gross profit on sales, begin with sales and subtract the cost of goods sold from it.
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True. This is the simple formula for gross profit on sales.
6.
Net earnings is often called the "bottom line." On the income statement, it appears last.
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False. Common and preferred dividends, as well as retained earnings, appear after net earnings.
7.
If a company has decided not to pay dividends to its stockholders this year, how will its retained earnings relate to its net earnings?
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They will be the same. Retained earnings are net earnings minus dividends. If there are no dividends, then retained earnings will not have changed from net earnings.