Net salesLess: Operating costs, except depreciation and amortizationLess: Depreciation and amortization expensesOperating income (or EBIT)Less: Interest expensePre-tax income (or EBT)Less: Taxes (25%)Earnings after taxesLess: Preferred stock dividendsEarnings available to common shareholdersLess: Common stock dividendsContribution to retained earningsGreen Caterpillar Garden Supplies Inc.Income Statement for Year Ending December 31Year 1$10,000,0008,000,000400,000$1,600,000160,0001,440,000360,000$1,080,000300,000780,000486,000$294,000Year 2 (Forecasted)$400,000$$$436,312 The income statement, also known as the profit and loss (P&L) statement, provides a snapshot of the financial performance of a company during aspecified period of time. It reports a firm's gross income, expenses, net income, and the income that is available for distribution to its preferred andcommon shareholders.The income statement is prepared using the generally accepted accounting principles (GAAP) that match the firm's revenues and expenses to theperiod in which they were incurred, not necessarily when cash was received or paid. Investors and analysts use the information given in the incomestatement and other financial statements and reports to evaluate the company's financial performance and condition.Consider the following scenario:Green Caterpillar Garden Supplies Inc.'s income statement reports data for its first year of operation. The firm's CEO would like sales to increase by25% next year.1. Green Caterpillar is able to achieve this level of increased sales, but its interest costs increase from 10% to 15% of earnings beforeinterest and taxes (EBIT).2. The company's operating costs (excluding depreciation and amortization) remain at 80% of net sales, and its depreciation andamortization expenses remain constant from year to year.3. The company's tax rate remains constant at 25% of its pre-tax income or earnings before taxes (EBT).4. In Year 2, Green Caterpillar expects to pay $300,000 and $602,438 of preferred and common stock dividends, respectively.Complete the Year 2 income statement data for Green Caterpillar, then answer the questions that follow. Be sure to round each dollar value to thenearest whole dollar.

An income statement is a financial report that indicates the revenue and expenses of a business. It…

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 (25%) Earnings after taxes Less: Preferred stock dividends Earnings available to common shareholders Less: Common stock dividends Contribution to retained earnings. Green Caterpillar Garden Supplies Inc. Income Statement for Year Ending December 31 Year 1 $10,000,000 8,000,000 400,000 $1,600,000 160,000 1,440,000 360,000 $1,080,000 300,000 780,000 486,000 $294,000 Year 2 (Forecasted) $ 400,000 $ TOU $ $436,312

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 (25%) Earnings after taxes Less: Preferred stock dividends Earnings available to common shareholders Less: Common stock dividends Contribution to retained earnings. Green Caterpillar Garden Supplies Inc. Income Statement for Year Ending December 31 Year 1 $10,000,000 8,000,000 400,000 $1,600,000 160,000 1,440,000 360,000 $1,080,000 300,000 780,000 486,000 $294,000 Year 2 (Forecasted) $ 400,000 $ TOU $ $436,312

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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