Question

For 20Y2, Tri-Comic Company initiated a sales promotion campaign that included the expenditure of an additional $50,000 for advertising. At the end of the year, Lumi Neer, the president, is presented with the following condensed comparative income statement:

Tri-Comic Company

Comparative Income Statement

For the Years Ended December 31, 20Y2 and 20Y1

1		20Y2	20Y1
2	Sales	$890,000.00	$600,000.00
3	Cost of goods sold	320,400.00	228,000.00
4	Gross profit	$569,600.00	$372,000.00
5	Selling expenses	$142,400.00	$84,000.00
6	Administrative expenses	62,300.00	54,000.00
7	Total operating expenses	$204,700.00	$138,000.00
8	Income from operations	$364,900.00	$234,000.00
9	Other income	80,100.00	54,000.00
10	Income before income tax	$445,000.00	$288,000.00
11	Income tax expense	231,400.00	156,000.00
12	Net income	$213,600.00	$132,000.00

1.	Prepare a comparative income statement for the two-year period, presenting an analysis of each item in relationship to sales for each of the years. Round your percentages to one decimal place. Enter all amounts as positive numbers.
2.	To the extent the data permit, comment on the significant relationships revealed by the vertical analysis prepared in (1).

Answer 1

Tri-Comic Company
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
	20Y2		20Y1
Sales	$ 890,000.00	100.0%	$ 600,000.00	100.0%
COGS	320,400.00	36.0%	228,000.00	38.0%
Gross Profit	$ 569,600.00	64.0%	$ 372,000.00	62.0%
Selling Expenses	$ 142,400.00	16.0%	$ 84,000.00	14.0%
Admin Expenses	62,300.00	7.0%	54,000.00	9.0%
Total Operating Expenses	$ 204,700.00	23.0%	$ 138,000.00	23.0%
Income from Operations	$ 364,900.00	41.0%	$ 234,000.00	39.0%
Other Income	80,100.00	9.0%	54,000.00	9.0%
Income before taxes	$ 445,000.00	50.0%	$ 288,000.00	48.0%
Income tax expense	231,400.00	26.0%	156,000.00	26.0%
Net Income	$ 213,600.00	24.0%	$ 132,000.00	22.0%

Sales and Gross Profit margin has increased and COGS have reduced. Selling expense has increased while Administration expense have reduced. Other Income has remained the same while Income from Operations and Income before Taxed have increased comparatively. Income tax rates remained the same however, Net Income increased.