Question

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 firm's gross income, expenses, net income, and the income that is available for distribution to its preferred and common shareholders. The income statem ent 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 scenari 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 ear 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 60% 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 $100,000 and $2,346,000 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 Cute Camel Woodcraft Company Income Statement for Year Ending December 31 Year 2 Year 1 (Forecasted) Net sales $25,000,000 15,000,000 1,000,000 $9,000,000 900,000 8,100,000 3,240,000 $4,860,000 100,000 4,760,000 1,944,000 $2,816,000 Less: Operating costs, except depreciation and amortization Less: Depreciation and amortization expenses 1,000,000 Operating income (or EBIT) Less: Interest expense Pre-tax income (or EBT) Taxes (40%) Earnings after taxes Less: Less: Preferred stock dividends Earnings available to common shareholders Less: Common stock dividends Contribution to retained earnings $3,419,000

Answer 1

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