Question

Vertical Analysis of Income Statement Revenue and expense data for Innovation Quarter Inc. for two recent years are as follows: Current Year Previous Year $551,000 $479,000 Sales Cost of goods sold 347,130 277,820 Selling expenses 82,650 Administrative expenses 88,160 81,430 71,850 19,160 Income tax expense 11,020 a. Prepare an income statement in comparative form, stating each item for both years as a percent of sales. If required, round percentages to one decimal place. Enter all amounts as positive numbers.

Answer 1

Innovation Quarter Inc. Comparative Income Statement For the years Ended December 31 Current Current Previous Previous year year year year Amount Percent Amount Percent Sales $551.000 100.0 % $479.000 100.0 % Cost of goods sold $347.130 63.0 % $277.820 58.0 % Gross profit(a) $203,870 37.0 % $201.180 42.0 % Selling expenses $82.650 15.0 % $81,430 17.0 % Administrative expenses $88.160 16.0 % $71.850 15.0 % Total operating expenses (b) $170.810 31.0 % $153,280 32.0 % Income from operations (a - b) $33,060 6.0 % $47.900 10.0 % Income tax expense $11,020 2.0 % $19,160 4.0% Net Income 4.0 % $28.740 6.0 % b) The vertical analysis indicates that the cost of goods sold as a percent of sales decreased by 5 percentage points while selling expenses decreased by 2 percentage points, and administrative expenses increased by 1 percentage points. Thus, net income as a percent of sales decreased by 2 percentage points.