ManagementThe 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 the periodin which they were incurred, not necessarily when cash was received or paid. Investors and analysts use the information given in the income statementand 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% nextyear.1. Fuzzy Button is able to achieve this level of increased sales, but its interest costs increase from 10% to 15% of earnings before interestand taxes (EBIT).2. The company's operating costs (excluding depreciation and amortization) remain at 60% of net sales, and its depreciation andamortization 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 $1,173,000 of preferred and common stock dividends, respectively.Complete the Year 2 income statement data for Fuzzy Button, then answer the questions that follow. Be sure to round each dollar value to the nearestwhole dollar.Fuzzy Button Clothing CompanyIncome Statement for Year Ending December 3178° TagementFuzzy Button Clothing CompanyIncome Statement for Year Ending December 31Year 1Year 2 (Forecasted)Net sales$20,000,000$4Less: Operating costs, except depreciation and amortization12,000,000Less: Depreciation and amortization expenses800,000800,000Operating income (or EBIT)$7,200,000Less: Interest expense720,000Pre-tax income (or EBT)$6,480,000$4Less: Taxes (40%)2,592,000Earnings after taxes$3,888,000$4Less: Preferred stock dividends150,000Earnings available to common shareholders$3,738,000$4Less: Common stock dividends972,000Contribution to retained earnings$2,766,000$3,369,000Given 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 receivein 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 fromin Year 1 toin Year 2.• Fuzzy Button's before interest, taxes, depreciation and amortization (EBITDA) value changed fromin Year 1 toin Year 2.• It isto 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 annualcontribution to retained earnings, $2,766,000 and $3,369,000, respectively. This is becauseof the items reported in the incomestatement involve payments and receipts of cash.

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The income statement, also known as the profit and loss (P&L) statement, provides a snapshot of the financial performance of a company d 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 p in which they were incurred, not necessarily when cash was received or paid. Investors and analysts use the information given in the income stater 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% year. Fuzzy Button is able to achieve this level of increased sales, but its interest costs increase from 10% to 15% of earnings before interest

The income statement, also known as the profit and loss (P&L) statement, provides a snapshot of the financial performance of a company d 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 p in which they were incurred, not necessarily when cash was received or paid. Investors and analysts use the information given in the income stater 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% year. Fuzzy Button is able to achieve this level of increased sales, but its interest costs increase from 10% to 15% of earnings before interest

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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Explain the statement, "While the statement of financial position can be thought as the snapshot of firm's financial position at a point in time, the income statement reports ob operations over a period of time."
The Income Statement (P&L) is a measure of an entity's economic performance (or “report card”) for a period of time. True False
The financial statement that shows the profitability of a business entity is known as: Group of answer choices Balance sheet and statement of retained earnings Balance sheet and income statement Income statement Statement of retained earnings
1. Define comprehensive income. What are the ways companies can present comprehensive income? 2. How are discontinued operations reported in the income statement? 3. Explain the difference(s) between investments in equity securities classified as current assets versus those classified as long-term (noncurrent) assets? 4. A summary of the company's significant accounting policies is a required disclosure. Why is this disclosure important to external financial statement users? 5. Deferred revenues represent liabilities recorded when cash is received from customers in advance of providing a good or service. What adjusting journal entry is required at the end of a period to recognize the amount of deferred revenues that were recognized during the period?
Explain how the income statement, which shows a company's financial success over a period of time in terms of the connection between revenues and costs, reports the financial performance of a company.
Which of the following is the most useful in analyzing companies of different sizes? a.comparative statements b.common-sized financial statements c.price-level accounting d.audit report
On an income statement, can a company report total revenues instead of net sales? Are these the same thing?
The following sentence should be explained: The balance sheet is a snapshot of a company's financial condition at a certain moment in time, while the income statement is a long-term view of a company's financial performance.
The retained earnings statement should be prepared a. before the income statement and balance sheet b. after the income statement and before the balance sheet C. before the income statement and after the balance sheet d. after the income statement and balance sheet
What is the purpose of a balance sheet? A) To report a company's financial performance over a specific period B) To show the changes in a company's equity during a specific period C) To report a company's assets, liabilities, and equity at a specific point in time D) To summarize a company's revenue and expenses over a specific pe riod
The primary purpose of showing special types of eventsseparately in the income statement is to:a. Increase earnings per share.b. Assist users of the income statement in evaluating theprofitability of normal, ongoing operations. c. Minimize the income taxes paid on the results of ongo-ing operations. d. Prevent unusual losses from recurring.
Which of the following accounting concepts do accountantsand auditors assess by using financial analyses?a. Time period. c. Full disclosure.b. Separate entity. d. Going-concern assumption.