Analysis Intermediate: Understanding the Income Statement

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1.
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.
2.
SONAR identifies the earnings on a balance sheet.
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True. The acronym includes the first letters of the earnings components.
3.
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.
4.
Operating income measures how profitable a companys operations are.
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True. This ultimately assesses the competence of the company in running itself.
5.
If a client repays a debt early, that payment is called ______.
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Extraordinary income. It is extraordinary because it is an unusual occurrence.
6.
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.
7.
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.