Question

Here are comparative statement data for Ivanhoe Company and Pharoah Company, two competitors. All balance sheet data are as of December 31, 2017, and December 31, 2016. Ivanhoe Company Pharoah Company 2017 2016 2017 2016 Net sales $ 1,913,000 $ 603,000 Cost of goods sold 1,081,000 289,000 Operating expenses 264,000 89,000 Interest expense 7,600 1,900 Income tax expense 65,600 31,000 Current assets 726,924 $ 696,674 185,839 $ 177,211 Plant assets (net) 1,174,764 1,115,000 311,593 280,561 Current liabilities 147,905 169,067 78,826 67,527 Long-term liabilities 254,198 200,700 66,053 55,750 Common stock, $10 par 1,115,000 1,115,000 267,600 267,600 Retained earnings 384,586 326,907 84,954 66,896

Prepare a vertical analysis of the 2017 income statement data for Ivanhoe Company and Pharoah Company. (Round all ratios to 1 decimal place, e.g. 2.5%.)

Condensed Income Statement For the Year Ended December 31, 2017
	Ivanhoe Company					Pharoah Company
	Dollars		Percent			Dollars		Percent
Cost of Goods SoldInterest ExpenseIncome From OperationsDividendsNet SalesGross ProfitTotal RevenuesIncome Tax ExpenseRetained Earnings, December 31Income Before Income TaxesOther Expenses and LossesOperating ExpensesTotal Operating ExpensesRetained Earnings, January 1ExpensesTotal ExpensesOther Revenues and GainsSales RevenuesNet Income / (Loss)	$ 1,913,000			%		$ 603,000			%
Gross ProfitNet SalesRetained Earnings, January 1DividendsOperating ExpensesTotal RevenuesTotal Operating ExpensesOther Expenses and LossesCost of Goods SoldOther Revenues and GainsSales RevenuesInterest ExpenseRetained Earnings, December 31ExpensesIncome Tax ExpenseTotal ExpensesNet Income / (Loss)Income From OperationsIncome Before Income Taxes	1,081,000			%		289,000			%
Net SalesInterest ExpenseOther Revenues and GainsIncome Before Income TaxesNet Income / (Loss)Total RevenuesTotal Operating ExpensesOther Expenses and LossesDividendsExpensesSales RevenuesTotal ExpensesIncome From OperationsRetained Earnings, December 31Gross ProfitCost of Goods SoldIncome Tax ExpenseRetained Earnings, January 1Operating Expenses	832,000			%		314,000			%
Net Income / (Loss)Interest ExpenseCost of Goods SoldGross ProfitOther Expenses and LossesSales RevenuesIncome From OperationsTotal Operating ExpensesIncome Before Income TaxesOperating ExpensesTotal ExpensesDividendsOther Revenues and GainsRetained Earnings, January 1Retained Earnings, December 31Net SalesExpensesTotal RevenuesIncome Tax Expense	264,000			%		89,000			%
Total RevenuesCost of Goods SoldNet SalesSales RevenuesExpensesTotal Operating ExpensesRetained Earnings, January 1Income Tax ExpenseTotal ExpensesIncome Before Income TaxesIncome From OperationsOperating ExpensesRetained Earnings, December 31Net Income / (Loss)DividendsInterest ExpenseOther Revenues and GainsOther Expenses and LossesGross Profit	568,000			%		225,000			%
Other Expenses and LossesExpensesNet SalesRetained Earnings, December 31Total Operating ExpensesIncome Before Income TaxesSales RevenuesIncome Tax ExpenseTotal ExpensesOperating ExpensesOther Revenues and GainsNet Income / (Loss)Cost of Goods SoldIncome From OperationsTotal RevenuesRetained Earnings, January 1Gross ProfitInterest ExpenseDividends
Total Operating ExpensesDividendsInterest ExpenseSales RevenuesGross ProfitIncome From OperationsIncome Before Income TaxesRetained Earnings, January 1Total RevenuesOperating ExpensesNet Income / (Loss)Retained Earnings, December 31Income Tax ExpenseTotal ExpensesCost of Goods SoldOther Expenses and LossesExpensesNet SalesOther Revenues and Gains	7,600			%		1,900			%
DividendsTotal ExpensesIncome From OperationsRetained Earnings, January 1Other Expenses and LossesTotal RevenuesGross ProfitInterest ExpenseOther Revenues and GainsSales RevenuesCost of Goods SoldIncome Before Income TaxesRetained Earnings, December 31Operating ExpensesIncome Tax ExpenseNet SalesExpensesTotal Operating ExpensesNet Income / (Loss)	560,400			%		223,100			%
Sales RevenuesTotal Operating ExpensesDividendsTotal ExpensesNet Income / (Loss)Total RevenuesOther Revenues and GainsIncome Tax ExpenseOther Expenses and LossesIncome From OperationsCost of Goods SoldIncome Before Income TaxesRetained Earnings, January 1Retained Earnings, December 31Interest ExpenseOperating ExpensesGross ProfitNet SalesExpenses	65,600			%		31,000			%
DividendsExpensesNet SalesTotal ExpensesGross ProfitIncome From OperationsRetained Earnings, December 31Other Expenses and LossesIncome Before Income TaxesIncome Tax ExpenseSales RevenuesOther Revenues and GainsTotal RevenuesInterest ExpenseCost of Goods SoldNet Income / (Loss)Retained Earnings, January 1Operating ExpensesTotal Operating Expenses	$ 494,800			%		$ 192,100			%

Answer 1

Condensed Income Statement
Vertical Analysis
	Ivanhoe Company		Pharoah Company
	Dollars	Percent	Dollars	Percent
Net sales	$ 19,13,000.00	100.0%	$ 6,03,000.00	107.9%
Cost of goods sold	$ 10,81,000.00	57.9%	$ 2,89,000.00	51.7%
Gross Profit	$    8,32,000.00	44.6%	$ 3,14,000.00	56.2%
Operating expenses	$    2,64,000.00	14.1%	$      89,000.00	15.9%
Operating Income	$    5,68,000.00	30.4%	$ 2,25,000.00	40.3%
Other Expenses
Interest expense	$          7,600.00	0.4%	$        1,900.00	0.3%
Income before Income Taxes	$    5,60,400.00	30.0%	$ 2,23,100.00	39.9%
Income tax expense	$        65,600.00	3.5%	$      31,000.00	5.5%
Net Income/ (Loss)	$    4,94,800.00	26.5%	$ 1,92,100.00	34.4%