3. Income statement Aa The income statement, also known as the profit and loss (PaL) statement provides a snapshot of the financial performance of a company during a speafied 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 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 inaurred, not necessanily 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 Fuzzy Button dothing 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. Fuzzy Button 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 (eduding 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 (E 4 tn year 2, Fuzzy Button expects to pay $100,000 and $1,708,5oo of preferred and common stock dividends, respectively complete the Year 2 income statement data for Fuzzy Button, then answer the questions that follow De sure to round each dollar value to the nearest whole dollar Fuzzy Button clothing Company Income statement for Year Ending December 31 Year 2 (Forecasted) Year 1 $25,000,000 17,500,000 1,000,000 $6,500,000 650,000 5,850,000 2,340,000o $3,510,000 100,000 3,410,000 1,404,000 $2,006,000 Net sales Less: operating costs, except depreciation Less: Depreciation and amortization expenses and amortization 1,000,000 operating income (or EBIT) Pre-tax income (or EBT) Eamings after taxes Earnings available to common shareholders Contribution to retained earnings Less: Interest expense Less: Taxes (40%) Less: Preferred stock dividends Less: Common stock dividends $2,462,750 Given the results of the previous income statement calculations, complete the following statements: In Year 2, if Fuzzy Button has 5,000 shares of preferred stock issued and outstanding, then each preferred share should expect to receive in annual dividends If Fuzy Button has 400,000 shares of common stock issued and outstanding, then the frm's earnings per share (EPS) is expected to change from in Year 1 to in Year 2. Fuzzy Button's before interest, taxes, depreciation and amortization (EBITDA) value changed from in Year 1 to in year 2. to say that Fuzzy .it is Button's net inflows and outflows of cash at the end of Years 1 and 2 are equal to the company's annual contrbution toretained earnings, $2,006,000 and $2,462,75o, respectively. This is because income statement involve payments and receipts of cash. of the item reported in the