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: 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 amortization) remain at 65% 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 $150,000 and $1,267,031 of preferred and common stock dividends, respectively. Fuzzy Button Clothing CompanyIncome Statement for Year Ending December 31 Year 1 $25,000,000 Net sales 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 (40%) Earnings after taxes Less: Preferred stock dividends Earnings available to common shareholders Less: Common stock dividends Contribution to retained earnings Year 2 (Forecasted) 16,250,000 1,000,000 1,000,000 $7,750,000 $ 775,000 $6,975,000 $ 2,790,000 $4,185,000 $ 150,000 $4,035,000 $ 1,046,250 $2,988,750 $3,651,094 Given the results of the previous income statement calculations, complete the following statements: In Year 2, if Fuzzy Button has 10,000 shares of preferred stock issued and outstanding, then each preferred share should expect to receive in annual dividends. If Fuzzy Button has 200,000 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. Fuzzy Button's before interest, taxes, depreciation and amortization (EBITDA) value changed from in Year 1 to . It is in Year 2. to say that Fuzzy Button'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, $2,988,750 and $3,651,094, respectively. This is because of the items reported in the income statement involve payments and receipts of cash.