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: 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. Cute Camel Woodcraft Company Income Statement for Year Ending December 31 Year 1 Year 2 (Forecasted) Net sales $20,000,000 $ Less: Operating costs, except depreciation and 14,000,000 amortization Less: Depreciation and amortization expenses 800,000 800,000 Operating income (or EBIT) $5,200,000 $ Less: Interest expense 520,000 Pre-tax income (or EBT) 4,680,000 Less: Taxes (40%) 1,872,000 Earnings after taxes $2,808,000 $ Less: Preferred stock dividends 200,000 Earnings available to common shareholders 2,608,000 Less: Common stock dividends 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 in annual dividends. Different companies have different debt-related expenses, depreciation and amortization expenses, and tax expenses. Changes in any of these variables can affect a company's income statement. Specifically, a decrease in the company's tax rate will cause its operating profit to Cute Camel's before interest, taxes, depreciation and amortization (EBITDA) value changed from in Year 1 to in Year 2. . It is 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 item reported in the income statement involve payments and receipts of cash