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3. Income statement The income statement, also known as the profit and loss (P&L) statement, provides a snapshot of the financial performance of a company during a specified period of time. It reports a firms gross income, expenses, net income, and the income that is available for distribution to its preferred and common shareholders. The income statement is prepared using the generally accepted accounting principles (GAAP) that match the firms revenues and expenses to the period in which they were incurred, not necessarily when cash was received or paid. Investors and analysts use the information given in the income statement and other financial statements and reports to evaluate the companys financial performance and condition. Consider the following scenario: Blue Hamster Manufacturing Inc.s income statement reports data for its first year of operation. The firms CEO would like sales to increase by 25% next year Blue Hamster is able to achieve this level of increased sales, but its interest costs increase from 10% to 15% of earnings before interest and taxes (EBIT) 1, 2. The companys operating costs (excluding depreciation and amortization) remain at 60% of net sales, and its depreciation and amortization expenses remain constant from year to year. 3. The companys tax rate remains constant at 40% of its pre-tax income or earnings before taxes (EBT). 4. In Year 2, Blue Hamster expects to pay $100,000 and $1,876,800 of preferred and common stock dividends, respectively.Complete the Year 2 income statement data for Blue Hamster, then answer the questions that follow. Be sure to round each dollar value to the nearest whole dollar Blue Hamster Manufacturing Inc. Income Statement for Year Ending December 31 Year 2 Year 1 (Forecasted) Net sales $20,000,000 12,000,000 800,000 $7,200,000 720,000 6,480,000 2,592,000 $3,888,000 100,000 3,788,000 1,555,200 $2,232,800 Less: Operating costs, except depreciation and amortization Less: Depreciation and amortization expenses 800,000 Operating income (or EBIT) Less: Interest expense Pre-tax income (or EBT) Less: Taxes (40%) Earnings after taxes Less: Preferred stock dividends Earnings available to common shareholders Less: Common stock dividends Contribution to retained earnings $2,715,200iven the results of the previous income statement calculations, complete the following statements: In Year 2, if Blue Hamster has 5,000 shares of preferred stock issued and outstanding, then each preferred share should expect to receive in annual dividends. If Blue Hamster has 400,000 shares of common stock issued and outstanding, then the firms earnings per share (EPS) is expected to change from in Year 1 to in Year 2 Blue Hamsters before interest, taxes, depreciation and amortization (EBITDA) value changed from in Year 1 to · in Year 2 It is to say that Blue Hamsters net inflows and outflows of cash at the end of Years 1 and 2 are equal to the companys annual contribution to retained earnings, $2,232,800 and $2,715,200, respectively. This is because income statement involve payments and receipts of cash. of the item reported in the

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Home nert Page Layout Formulas Data Review View dd-Ins Cut Σ AutoSum ー E ゴWrap Text ta copy. в 1 프 . Ej-., Δ. : rーー 逻锂函Merge & Center. $, % , 弼,8 C Paste Conditional Format CeInsert Delete Format Formatting as Table Styles2 Clear Sort &Find & Format Painter Clipboard Font Alignment Number Styles Edting AW259 AQ AR AS AT AU AV AW AX AY AZ 241 242 243 244 245 246 247 248 249 250 251 252 253 254 255 256 257 258 259 YEAR 1 YEAR 2 (FORECASTED) 20000000 25000000 20000000 (1.25) 12000000 15 NET SALES OPERATING COST DEPRECIATION & AMORT EXP EBIT INTEREST EBT TAX EAT PREFERRED STOCK DIVIDEND EARNINGS FOR COMMON SHAREHOLDERS COMMON STOCK DIVIDENDS CONTRIBUTION TO RETAINED EARNINGS LESS 60% LESS 800000 7200000 720000 6480000 2592000 3888000 100000 3788000 1555200 2232800 9200000 1380000 7820000 3128000 4692000 100000 4592000 1876800 2715200 LESS LESS LESS LESS | FIFO . CASH BUDGET BV MV rato VARIANCE BEP, OL FLratios B-S t loss SALES BUDGET DIFF ANALYSIS . overhead . float erences: EX23 08:02 31-01-2019In Year Microsoft Word (Product Activation Failed) File Home nert Page Layout Reterences Mallings Review ew Cut Copy Find- ae Replace B 1 y-ex: x a-豐_a. change Select --= ! E . n Normal No Spaci Heading 1 Heading 2 Title Subtitle Subtle Em , S Format Painter Clipboard Font Paragraph Styles Editing 13 16 In Year 2, if Blue hamster has 5,000 shares of preferred stock issued and outstanding, then each preferred share should expectto receive $20 in annual dividends. (100000/5000) If Blue hamster has 400,000 shares of common stock issued and outstanding, then the firms earnings per share (EPS) is expected to change from $9.47 (-3788000/400000) in Year 1 to $11.48 (-4592000/400000) in Year 2 Blue hamster s before interest, taxes, depreciation and amortization (EBITDA) value changed from $8,000,000 (-20,000,000 - 12,000,000) in Year 1 to $10,000,000 (-25,000,000- 15,000,000) in Year 2 It is to WRONG say that Blue hamsters net inflows and outflows of cash at the end of Years 1 and 2 are equal to the companys annual contribution to retained earnings, $2,232,800 and $2,715,200 respectively. This is because NOT ALL of the item reported in the income statement involve payments and receipts of cash : 1,599 | English0ndia) | Pa 08:05 31-01-2019

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