Analysis Intermediate: Understanding the Income Statement

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1.
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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$4 million. To calculate gross profit on sales, simply subtract cost of goods sold from sales.
2.
Imagine that last year, the new company Vitamin$.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.
3.
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.
4.
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.
5.
What is the famous term for a companys net earnings?
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The bottom line. However, although it is called the bottom line, it does not occupy the lowest position on the page.
6.
SONAR identifies the earnings on a balance sheet.
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True. The acronym includes the first letters of the earnings components.
7.
"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.