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 firms 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 firms 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 companys financial performance and condition.

Consider the following scenario:

Cute Camel Woodcraft Companys income statement reports data for its first year of operation. The firms 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 companys 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 companys tax rate remains constant at 25% of its pre-tax income or earnings before taxes (EBT).
4.	In Year 2, Cute Camel expects to pay $100,000 and $1,281,375 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.

Year 2 (Forecasted) $ Net sales 600,000 $ Less: Operating costs, except depreciation and amortization Less: Depreciation and amortization expenses Operating income (or EBIT) Less: Interest expense Pre-tax income (or EBT) Less: Taxes (25%) Earnings after taxes Less: Preferred stock dividends Earnings available to common shareholders Less: Common stock dividends Contribution to retained earnings Cute Camel Woodcraft Company Income Statement for Year Ending December 31 Year 1 $15,000,000 10,500,000 600,000 $3,900,000 390,000 3,510,000 877,500 $2,632,500 100,000 2,532,500 1,053,000 $1,479,500 $ $1,822,062 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. If Cute Camel 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. Cute Camel's earnings 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, $1,479,500 and $1,822,062, respectively. This is because of the items 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 Cute Camel has 5,000 shares of preferred stock issued and outstanding, then each preferred share should expect to receive in annual dividends. mel has 400,000 shares of common stock issued and outstanding, then the firm's earnings per share (EPS) is expected to change from $30.00 in Year 1 to in Year 2. . $20.00 al's earnings before interest, taxes, depreciation and amortization (EBITDA) value changed from in Year 1 to in Year 2 $50.00 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 $40.00 n to retained earnings, $1,479,500 and $1,822,062, respectively. This is because of the items reported in the income statement involve payments and receipts of cash. Giv $6.58 esults of the previous income statement calculations, complete the following statements: $9.75 $6.33 if Cute Camel has 5,000 shares of preferred stock issued and outstanding, then each preferred share should expect to receive in annual dividends. $8.78 Jamel 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. Cute Camel's earnings 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, $1,479,500 and $1,822,062, respectively. This is because of the items reported in the income statement involve payments and receipts of cash. Given the results of the prev $8.01 he statement calculations, complete the following statements: $10.68 In Year 2, if Cute Camel h $12.56 hares of preferred stock issued and outstanding, then each preferred share should expect to receive in annual de $7.76 If Cute Camel has 400,00 Jf 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. Cute Camel's earnings 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, $1,479,500 and $1,822,062, respectively. This is because of the items reported in the income statement involve payments and receipts of cash. Given the results of the previous income statement calculations, complete the following statements: $4,777,500 In Year 2, if Cute Camel has 5,000 shares of preferred stock issued and outstanding, then each preferred sl $14,400,000 ect to receive in annual dividends. $6,532,500 If Cute Camel has 400,000 shares of common stock issued and outstanding, then the firm's earnings per sh bected to change from $4,500,000 in Year 1 to in Year 2. Cute Camel's earnings 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, $1,479,500 and $1,822,062, respectively. This is because of the items reported in the income statement involve payments and receipts of cash. Given the results of the previous income statement calculations, complete the following statements: $5,625,000 I Camel has 5,000 shares of preferred stock issued and outstanding, then each preferred share should expect to receive $19,503,750 annual dividends. I $16,328,437 35 400,000 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 $8,228,437 rnings 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, $1,479,500 and $1,822,062, respectively. This is because of the items 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 fear 1 to 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. If Cute Camel 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. nings before interest, taxes, depreciation and amortization (EBITDA) value changed from in Year 1 to correct 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, $1,479,500 and $1,822,062, respectively. This is because of the items reported in the income statement involve payments and receipts of cash. Cute 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. If Cute Camel 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. . Cute Camel's earnings before interest, taxes, depreciation and amortization (EBITDA) value o all but one in Year 1 to in Year 2. all It is to say that Cute Camel's net inflows and outflows of cash at the end of are equal to the company's annual contribution to retained earnings, $1,479,500 and $1,822,062, respectively. This is because of the items reported in the income statement involve payments and receipts of cash