Assignment: Chapter 02 Analysis of Financial Statements STEP: 1 of 5 The income statement, also known as a profit and loss (P&L.) statement, provides a snapshot of a company's financial performance 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 are incurred, not necessarily when cash is received or paid. Investors and analysts use the information presented in the income statement, and the other financial statements and reports, to evaluate the company's financial performance and condition. Consider the following scenario: Fuzzy Button Clothing 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 (excluding depreciation and arhortization) remain at 70.00% 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, Fuzzy Button expects to pay $100,000 and $896,963 of preferred and common stock dividends, respectively. Complete the Year 2 income statement data for Fuzzy Button, then answer the questions that follow. Round each dollar value to the nearest whole dollar Fuzzy Button Clothing Company Income Statement Years Ending December 31 Complete the Year 2 income statement data for Fuzzy Button, then answer the questions that follow. Round each dollar value dollar. Fuzzy Button Clothing Company Income Statement Years Ending December 31 Year 2 (Forecasted) Year 1 Net sales $18,750,000 $15,000,000 Fixed operating costs, except depreciation and amortization (10,500,000) Depreciation and amortization expenses (600,000) (600,000) Net operating income (or EBIT) $3,900,000 Interest (390,000) Earnings before taxes (or EBT) Taxes (40%) $3,510,000 (1,404,000) Net Income $2,106,000 (100,000) Preferred dividends Earnings available to common stockholders (EAC) Common dividends Addition to retained earnings $2,006,000 (737,100) $1,565,787 $1,268,900