Analysis Intermediate: Understanding the Income Statement

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1.
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?
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$900,000. Retained earnings are net earnings minus dividends.
2.
Why do stockholders take an interest in a companys net earnings?
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Net earnings determine how much is available to be paid as dividends. Of course, the board of directors must first declare dividends payable.
3.
"Other income" includes a factor that is often not named in a balance sheet. What is the name for this factor?
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Extraordinary income. Both "other income" and "extraordinary income" are income derived from outside the normal scope of a companys operations.
4.
What is a companys gross profit on sales if it earned $10 million in sales and spent $6 million on producing goods?
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$4 million. To calculate gross profit on sales, simply subtract cost of goods sold from sales.
5.
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.
6.
What must be subtracted from sales to arrive at gross profits on sales?
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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.
7.
SONAR identifies the earnings on a balance sheet.
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True. The acronym includes the first letters of the earnings components.