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 Cold Goose Metal Works Inc s income statement reports data for its first year of operation The firms 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 companys 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 companys tax rate remains constant at 25 of its pre tax income or earnings before taxes (EBT) 4 In Year 2, Cold Goose expects to pay $100,000 and $2,052,750 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) Net sales $20,000,000 12,000,000 Less Operating costs, except depreciation and amortization Less Depreciation and amortization expenses 800,000 Operating income (or EBIT) Less Interest expense Pre tax income (or EBT) Less Taxes (25 ) 800,000 $7,200,000 720,000 6,480,000 1,620,000 $4,860,000 100,000 4,760,000 1,701,000 $3,059,000 Earnings after taxes Less Preferred stock dividends Earnings available to common shareholders Less Common stock dividends Contribution to retained earnings $3,712,250

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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 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:

Cold Goose Metal Works Inc.s income statement reports data for its first year of operation. The firms 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 companys 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 companys tax rate remains constant at 25% of its pre-tax income or earnings before taxes (EBT).
4.	In Year 2, Cold Goose expects to pay $100,000 and $2,052,750 of preferred and common stock dividends, respectively.

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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) Net sales $20,000,000 12,000,000 Less: Operating costs, except depreciation and amortization Less: Depreciation and amortization expenses 800,000 Operating income (or EBIT) Less: Interest expense Pre-tax income (or EBT) Less: Taxes (25%) 800,000 $7,200,000 720,000 6,480,000 1,620,000 $4,860,000 100,000 4,760,000 1,701,000 $3,059,000 Earnings after taxes Less: Preferred stock dividends Earnings available to common shareholders Less: Common stock dividends Contribution to retained earnings $3,712,250