Question

The income statement is prepared using the generally accepted accounting principles (GAAP) that match the firm's 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 company's financial performance and condition. Consider the following scenario: Cute Camel Woodcraft Company's income statement reports data for its first year of operation. The firm's CEO would like sales to increase by 25% next year. 1. Cute Camel 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). 2. The company's operating costs (excluding depreciation and amortization) remain at 70% of net sales, and its depreciation and amortization expenses remain constant from year to year. 3. The company's tax rate remains constant at 40% of its pre-tax income or earnings before taxes (EBT). 4. In Year 2, Cute Camel expects to pay $200,000 and $1,025,100 of preferred and common stock dividends, respectively. Complete the Year 2 income statement data for Cute Camel, then answer the questions that follow. Be sure to round each dollar value to the nearest whole dollar. Year 2 (Forecasted) Net sales Less: Operating costs, except depreciation and amortization Cute Camel Woodcraft Company Income Statement for Year Ending December 31 Year 1 $20,000,000 14,000,000 800,000 $5,200,000 520,000 4,680,000 1,872,000 800,000 Less: Depreciation and amortization expenses 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 $2,808,000 200,000 2,608,000 842,400 Contribution to retained earnings $1,765,600 $2,191,900 Given the results of the previous income statement calculations, complete the following statements: • In Year 2, if Cute Camel has 5,000 shares of preferred stock issued and outstanding, then each preferred share should expect to receive v in annual dividends. . IT Cute Camel has 400,000 shares of common stock issued and outstanding, then the firm's earnings per share (EPS) is expected to change from in Year 1 to in Year 2. • Cute Camel's earnings before interest, taxes, depreciation and amortization (EBITDA) value changed from in Year 1 to in Year 2 to say that Cute Camel's net inflows and outflows of cash at the end of Years 1 and 2 are equal to the company's annual contribution to retained earnings, $1,765,600 and $2,191,900, respectively. This is because of the items reported in the income statement involve payments and receipts of cash.

Answer 1

Please give positive ratings so I can keep answering. It would help me a lot. Please comment if you have any query. Thanks!

Cute Camel
Income Statement	Year 1	Year 2	Remarks
Net Sales	20,000,000.00	25,000,000.00	Sales is increased by 25% from last year. So this is 125% of $ 20 million.
Less: Operating costs, except depreciation and amortization	14,000,000.00	17,500,000.00	This is 70% of total sales.
Less: Depreciation and amortization expense	800,000.00	800,000.00	As per question it is fixed and there is no change.
Operating Income or (EBIT)	5,200,000.00	6,700,000.00
Less: Interest expense	520,000.00	1,005,000.00	This is 15% of Operating Income or (EBIT).
Pre tax Income or (EBT)	4,680,000.00	5,695,000.00
Less: Taxes at 40%	1,872,000.00	2,278,000.00	This is 40% of Pre tax Income or (EBT).
Earnings after taxes	2,808,000.00	3,417,000.00
Less: Preferred Stock dividend	200,000.00	200,000.00	This is given in the sum.
Earnings available to common stock holders	2,608,000.00	3,217,000.00
Less: Common Stock dividends	842,400.00	1,025,100.00	This is given in the sum.
Contribution to Retained Earnings	1,765,600.00	2,191,900.00
Complete the following statements
	Year 2
Preferred Stock dividend	200,000.00
Number of Preferred Shares	5,000.00
Preferred Stock dividend per share	40.00	This is Preferred Stock dividend/ Number of Preferred Shares.
	Year 1	Year 2
Earnings available to common stock holders	2,608,000.00	3,217,000.00
Number of Common Shares	400,000.00	400,000.00
Earnings per share	6.52	8.04	This is Earnings available to common stock holders / Number of Common Shares.
Change in Earnings per share by		1.52	This Earnings per share of Year 2 less Earnings per share of Year 1.
	Year 1	Year 2
Operating Income or (EBIT)	5,200,000.00	6,700,000.00
Add: Depreciation and amortization expense	800,000.00	800,000.00
EBITDA	6,000,000.00	7,500,000.00
Change EBITDA by		1,500,000.00	This EBITDA of Year 2 less EBITDA of Year 1.
For question 4. I cannot provide answers until I have the options. Please provide the options in comments I will reply for sure. Thanks!