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
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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
$
$
$436,312
Transcribed Image Text: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 $ $ $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 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:
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 by
25% 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 before
interest and taxes (EBIT).
2. The company's 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 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 the
nearest whole dollar.
Transcribed Image Text: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: 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 by 25% 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 before interest and taxes (EBIT). 2. The company's 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 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 the nearest whole dollar.
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Follow-up Question
Given the results of the previous income statement calculations, complete the following statements:
• In Year 2, if Green Caterpillar has 25,000 shares of preferred stock issued and outstanding, then each preferred share should expect to receive
in annual dividends.
• If Green Caterpillar 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.
• Green Caterpillar's earnings before interest, taxes, depreciation and amortization (EBITDA) value changed from
in Year 2.
in Year 1 to
. It is
to say that Green Caterpillar'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, $294,000 and $436,312, respectively. This is because
of the items reported in the income
statement involve payments and receipts of cash.
Transcribed Image Text:Given the results of the previous income statement calculations, complete the following statements: • In Year 2, if Green Caterpillar has 25,000 shares of preferred stock issued and outstanding, then each preferred share should expect to receive in annual dividends. • If Green Caterpillar 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. • Green Caterpillar's earnings before interest, taxes, depreciation and amortization (EBITDA) value changed from in Year 2. in Year 1 to . It is to say that Green Caterpillar'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, $294,000 and $436,312, respectively. This is because of the items reported in the income statement involve payments and receipts of cash.
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