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:

Blue Hamster Manufacturing 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.	Blue Hamster 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 80% of net sales, and its depreciation and amortization expenses remain constant from year to year.
3.	The companys tax rate remains constant at 40% of its pre-tax income or earnings before taxes (EBT).
4.	In Year 2, Blue Hamster expects to pay $300,000 and $481,950 of preferred and common stock dividends, respectively.

Complete the Year 2 income statement data for Blue Hamster, then answer the questions that follow. Be sure to round each dollar value to the nearest whole dollar.

Blue Hamster Manufacturing Inc.Income Statement for Year Ending December 31
	Year 1	Year 2 (Forecasted)
Net sales	$10,000,000
Less: Operating costs, except depreciation and amortization	8,000,000
Less: Depreciation and amortization expenses	400,000	400,000
Operating income (or EBIT)	$1,600,000
Less: Interest expense	160,000
Pre-tax income (or EBT)	$1,440,000
Less: Taxes (40%)	576,000
Earnings after taxes	$864,000
Less: Preferred stock dividends	300,000
Earnings available to common shareholders	$564,000
Less: Common stock dividends	388,800
Contribution to retained earnings	$175,200	$289,050