Analysis Intermediate: Understanding the Income Statement

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1.
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.
2.
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!
3.
SONAR identifies the earnings on a balance sheet.
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True. The acronym includes the first letters of the earnings components.
4.
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.
5.
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.
6.
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.
7.
Total revenue from product sales minus the cost of producing those products yields _______.
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Gross profit on sales. This is the formula for gross profit on sales.