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% 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 costs (excluding depreciation and amortization) remain at 70.00% 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 $896,963 of preferred and common stock dividends, respectively. Complete the Year 2 income statement data for Fuzzy Button, then answer the questions that follow. Round each dollar value to the nearest whole dollar. Fuzzy Button Clothing CompanyIncome StatementYears Ending December 31Net salesFixed operating costs, except depreciation and amortizationDepreciation and amortization expensesNet operating income (or EBIT)InterestEarnings before taxes (or EBT)Taxes (40%)Net IncomePreferred dividendsEarnings available to common stockholders (EAC)Common dividendsAddition to retained earningsYear 2 (Forecasted)$$$$$(600,000)Year 1$15,000,000) (10,500,000)(600,000)$1,565,787)$3,900,000(390,000)$3,510,000(1,404,000)$2,106,000(100,000)$2,006,000(737,100)$1,268,900

Note: As per the question provided, the income statement is prepared. Income statement expresses the…

Answered: Consider the following scenario: Fuzzy…

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter1: The Role Of Accounting In Business

Section: Chapter Questions

Problem 1.3.2P: Income statement, retained earnings statement, and balance sheet The following financial data were...

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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% 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 costs (excluding depreciation and amortization) remain at 70.00% 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 $896,963 of preferred and common stock dividends, respectively.

Complete the Year 2 income statement data for Fuzzy Button, then answer the questions that follow. Round each dollar value to the nearest whole dollar.

Fuzzy Button Clothing Company
Income Statement
Years Ending December 31
Net sales
Fixed operating costs, except depreciation and amortization
Depreciation and amortization expenses
Net operating income (or EBIT)
Interest
Earnings before taxes (or EBT)
Taxes (40%)
Net Income
Preferred dividends
Earnings available to common stockholders (EAC)
Common dividends
Addition to retained earnings
Year 2 (Forecasted)
$
$
$
$
$
(600,000)
Year 1
$15,000,000
) (10,500,000)
(600,000)
$1,565,787
)
$3,900,000
(390,000)
$3,510,000
(1,404,000)
$2,106,000
(100,000)
$2,006,000
(737,100)
$1,268,900

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