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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
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 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 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: Cold Goose Metal Works Inc.'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. Cold Goose 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, Cold Goose expects to pay $200,000 and $1,537,650 of preferred and common stock dividends, respectively. Complete the Year 2 income statement data for Cold Goose, then answer the questions that follow. Be sure to round each dollar value to the nearest whole dollar Cold Goose Metal Works Inc. Income Statement For Year Ending December 31 Year 1 Year 2 (Forecasted) $37,500,000 Net sales $30,000,000 21,000,000 26,250,000 Less: Operating costs, except depreciation and amortization Less: Depreciation and amortization expenses Operating income (or EBIT) 1,200,000 1,200,000 $10,050,000 Less: Interest expense $7,800,000 780,000 7,020,000 1,507,500 Pre-tax income (or EBT) 8,542,500 2,808,000 Less: Taxes (40%) Earnings after taxes $4,212,000 $ Less: Preferred stock dividends 200,000 Earnings available to common shareholders 4,012,000 Less: Common stock dividends 1,263,600 $2,748,400 Contribution to retained earnings $ Given the results of the previous income statement calculations, complete the following statements: In Year 2, if Cold Goose has 5,000 shares of preferred stock issued and outstanding, then each preferred share should expect to receive in annual dividends. If Cold Goose 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. Cold Goose's before interest, taxes, depreciation and amortization (EBITDA) value changed from in Year 1 to in Year 2. It is to say that Cold Goose'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. This is because of the item reported in the income statement involve payments and receipts of cash. Given the results of the previous income statement calculations, complete the following statements: In Year 2, if Cold Goose has 5,000 shares of preferred stock issued and outstanding, then each preferred share should expect to receive in annual dividends. se has 400,000 shares of common stock issued and outstanding, then the firm's earnings per share (EPS) is expected to change from $40.00 in Year 1 to in Year 2. . $80.00 s before interest, taxes, depreciation and amortization (EBITDA) value changed from in Year 1 to in Year 2. $60.00 to say that Cold Goose's net inflows and outflows of cash at the end of Years 1 and 2 are equal to the company's annual $100.00 to retained earnings. This is because of the item reported in the income statement involve payments and receipts of cash. Contribution to retained earnings $2,748,400 $ GIN $17.55 sults of the previous income statement calculations, complete the following statements: $10.53 $19.50 if Cold Goose has 5,000 shares of preferred stock issued and outstanding, then each preferred share should expect to receive in annual dividends. $10.03 bse 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. Cold Goose's before interest, taxes, depreciation and amortization (EBITDA) value changed from in Year 1 to in Year 2. It is to say that Cold Goose'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. This is because of the item reported in the income statement involve payments and receipts of cash. $25.13 Given the results of the prev he statement calculations, complete the following statements: $12.81 In Year 2, if Cold Goose ha $12.31 hares of preferred stock issued and outstanding, then each preferred share should expect to receive in annual $21.36 If Cold Goose has 400,000 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. . Cold Goose's before interest, taxes, depreciation and amortization (EBITDA) value changed from in Year 1 to in Year 2. It is to say that Cold Goose'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. This is because of the item reported in the income statement involve payments and receipts of cash. Given the results of the previous income statement calculations, complete the following statements $9,000,000 In Year 2, if Cold Goose has 5,000 shares of preferred stock issued and outstanding, then each p $12,012,000 hould expect to receive in annual dividends. $10,608,000 If Cold Goose has 400,000 shares of common stock issued and outstanding, then the firm's earni EPS) is expected to change from $28,800,000 in Year 1 1 to in Year 2. in Year 1 to Cold Goose's before interest, taxes, depreciation and amortization (EBITDA) value changed from in Year 2. It is to say that Cold Goose'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. This is because of the item reported in the income statement involve payments and receipts of cash. Given the results of the previous income statement calculations, complete the following statements: $15,175,500 Goose has 5,000 shares of preferred stock issued and outstanding, then each preferred share should expect to receive $11,250,000 annual dividends. $31,375,500 S 400,000 shares of common stock issued and outstanding, then the firm's earnings per share (EPS) is expected to change from Year 1 to in Year 2. $39,007,500 fore interest, taxes, depreciation and amortization (EBITDA) value changed from in Year 1 to in Year 2. It is to say that Cold Goose'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. This is because of the item reported in the income statement involve payments and receipts of cash. Given the results of the previous income statement calculations, complete the following statements: incorrect Year 1 to Cold In Year 2, if Cold Goose has 5,000 shares of preferred stock issued and outstanding, then each preferred share should expect to receive in annual dividends. If Cold Goose 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 2. fore interest, taxes, depreciation and amortization (EBITDA) value changed from in Year 1 to correct in Year 2. It is to say that Cold Goose'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. This is because of the item reported in the income statement involve payments and receipts of cash. Given the results of the previous income statement calculations, complete the following statements: In Year 2, if Cold Goose has 5,000 shares of preferred stock issued and outstanding, then each preferred share should expect to receive in annual dividends. If Cold Goose 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. . Cold Goose's before interest, taxes, depreciation all but one on (EBITDA) value changed from in Year 1 to in Year 2. all It is to say that Cold Goose's net ir Jtflows of cash at the end of Years 1 and 2 are equal to the company's annual contribution to retained earnings. This is because all but one of the item reported in the income statement involve payments and receipts of cash
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