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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
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 inarred, 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 oompany's financial performance and condition. Consider the following scenario: Fuzzy Button Cothing 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 oosts (exduding depreciation and amortization) remain at 6s% 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 s,621,800 of preferred and common stock dividends, respectively. Complete the Year 2 income statement data for Fuzzy Button, then answerthe questions that follow. Be sure to round each dolar value to the nearest
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