Question

E13-1 Preparing and Interpreting a Schedule for Horizontal and Vertical Analyses (LO 13-2, LO 13-3, LO 13-5) The average price of a gallon of gas in 2015 dropped $0.94 (28 percent) from $3.34 in 2014 (to $2.40 in 2015). Required: 1. Conduct a horizontal analysis by calculating the year-over-year changes in each line item, expressed in dollars and in percentages for the income statement of Insignia Corporation for the year ended December 31, 2015 (amounts in billions). 2-a. Conduct a vertical analysis by expressing each line as a percentage of total revenues. 2-b. Excluding income tax and other operating costs, did Insignia earn more profit per dollar of revenue in 2015 compared to 2014?

Answer 1

Requirement 1: INSIGNIA CORPORATION Income Statements (amounts in billions) For the Year Ended December 31 2015 2014 257 Revenues Cost of Crude Oil and Products Other Operating Costs Income before Income Tax Expense Income Tax Expense Net Income Change in Dollars Percentage -52.1% -58.1% 13.5% -96.5% -100.0% -92.0% 25 $ 2014 Requirement 2A: INSIGNIA CORPORATION Income Statements (amounts in billions) For the Year Ended December 31 2015 Revenues 100.0% $ Cost of Crude Oil and Products 50.4% $ Other Operating costs 48.0% s Income before Income Tax Expense 1.6% $ Income Tax Expense 0.0% $ Net Income 1.6% $ 100.0% 57.6% 20.2% 22.2% 12.5% 9.7% Requirement 2B: Yes, Insignia Corporation earned more profit per dollar of revenue in 2015 in comparison to 2014.