Analysis Intermediate: Understanding the Income Statement

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1.
SONAR identifies _______.
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Earnings. All earnings, when placed vertically and worded in a special way, will spell the acronym SONAR.
2.
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.
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.
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.
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.
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.
7.
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.