Case: Party-Time T-Shirts sells T-shirts for parties at the local college. The company completed the first year of operations, and the shareholders are generally pleased with operating results as shown by the following income statement: PARTY-TIME T-SHIRTS Income Statement Year Ended December 31, 2017 Net Sales Revenue Cost of Goods Sold Gross Profit Operating Expenses: Selling Expense Administrative Expense Net Income $350,000 210,000 140,000 40,000 25,000 $ 75,000 Bill Hildebrand, the controller, is considering how to expand the business. He proposes two ways to increase profits to $100,000 during 2018. 1. Hildebrand believes he should advertise more heavily. He believes additional advertising costing $20,000 will increase net sales by 30% and leave administrative expense unchanged. Assume that Cost of Goods Sold will remain at the same percentage of net sales as in 2017, so if net sales increase in 2018, Cost of Goods Sold will increase proportionately. In summary, sales will increase by 30%, cost of goods sold will increase by 30%, and advertising will increase by $20,000. 2. Hildebrand proposes selling higher-margin merchandise, such as party dresses, in addition to the existing product line. An importer can supply a minimum of 1,000 dresses for $40 each (this is cost of goods sold); Party-Time can mark these dresses up 100% and sell them for $80 (this is the selling price). Hildebrand realizes he will have to advertise the new merchandise, and this advertising will cost $5,000. Party-Time can expect to sell only 80% of these dresses during the coming year. In summary, sales increase by 1,000 ($40 x 2) selling price; cost of goods sold increases by 1,000 x $40 cost; and advertising increases by $5,000. Help Hildebrand determine which plan to pursue. Prepare a multi-step income statement for 2018 to show the expected net income under each plan. Prepare a memo outlining the options and the results of each.