Question

Keep the Highest 2 3. Income Matement The income statement, who known as the profit and loss (PAL) statement provides a snapshot of the financial performance of a company during a specified period of time. It reports aim's gross income, expenses, net income, and the income that walable for distribution to its preferred and common shareholders The income statement is prepared using the generally accepted accounting principles (GAP) that match the firm's revenues and expenses to the period in which they were incurred, not necessarily when she was received or paid investors and anwysts use the information given in the income e and other financ e ments and reports to evaluate the company's financial performance and condition s Consider the following scenarios Cold Goose Metal Works Inc.'s income statement reports data for its first year of operation. The firm's CEO wood ke sales to increase by 25% next 1. Cold Goose is able to achieve this level of increased sales, but is interest costs increase from 10 to 15 of earnings before interest and taxes (EBIT) 2. The company's operating cos (excluding depreciation and amortization) remain at 75% of news and depreciation and bon expenses remain contant from year to year 3. The company's tax rate con i pre tax income or carrings before taxes (ET) In Year 2. Cold Goose expects to pay $300.000 and 12.00 p red and common stack dividends, respectively Complete the Year come wa s for Gold Gothen awer the questions that w e are to round each dollar to the nearest e here to search DELL

Answer 1

Completing Year 2 Income Statement for Cold Goose Metals:

Particular	Year 1	Year 2 (Forecasted)	Forecasted details relating to Year 2
Net Sales	15,000,000	18,750,000	Increased 25% from year 1
Less: Operating Costs except depreciation and amortization	11,250,000	14,062,500	Operating Costs except depreciation remains 75% of sales
Less: Depreciation	600,000	600,000	Remains constant
Operating Income (or EBIT)	3,150,000	4,087,500	--
Less: Interest Expenses	315,000	613,125	Interest Exp. 15% of EBIT
Pre- Tax Income (or EBT)	2,835,000	3,474,375	--
Less: Tax @ 25%	708,750	868,594
Earnings after Taxes	2,126,250	2,605,781
Less: Preferred stock dividends	300,000	300,000
Earnings available to Common shareholders	1,826,250	2,305,781
Less: Common Stock Dividends	956,813	172,601
Contribution to Retained earnings	869,437	2,133,180

Further, completing the following statements:-

- Each Preferrence Share should expect to receive = $ 300,000/25,000 shares

= $ 12 per preferrence share

- Calculating earning per share of Year 1 & Year 2

	Particular	Year 1	Year 2
a	Earnings available to Common shareholders	1,826,250	2,305,781
b	No. of Common stock	200,000	200,000
	Earning Per Share(EPS) [(a)/(b)]	9.13	11.53

So,EPS is expected to increase from Y-1 of $ 9.13 to Y-2 of $ 11.53.

-- EBITDA of Year 1 = EBIT + Depreciation

= $ 3,150,000 + $ 600,000

= $ 3,750,000

EBITDA of Year 2 = EBIT + Depreciation

= $ 4,087,500 + $ 600,000

= $ 4,687,500

So,EBITDA value is expected to change from Y-1 of $ 3,750,000 to Y-2 of $ 4,687,500.

-- It is "Wrong" to say that Cold Goose's net inflows of cash and outflows of cash at the end of Year 1 and year 2 are equal to the company's contribution to retained earnings, $ 869,437 & $ 2,133,180, respectively. This is because "not all" of the items reported in the income statement involve payments and receipt of cash. Like Depreciation reported in Income statement does not involve receipt or payment of cash.

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