Analysis Intermediate: Understanding the Income Statement

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1.
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.
2.
On the balance sheet, retained earnings appear on _______.
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The bottom line. This fact does not make them the proverbial bottom line, however.
3.
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.
4.
SONAR identifies the earnings on a balance sheet.
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True. The acronym includes the first letters of the earnings components.
5.
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.
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.
Operating income includes any income that comes from outside sources.
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False. Outside sources are not part of the operating income equation.