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 Sales Cost of goods sold Selling expenses Administrative expenses Income tax expense 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. $573,000 360,990 85,950 91,680 11,460 $516,000 288,960 92,880 77,400 20,640 Innovation Quarter Inc. Comparative Income Statement For the Years Ended December 31 Current year Amount Current year Percent Previous year Amount Previous year Percent Sales $573,000 $516,000 Cost of goods sold 360,990 288,960 Selling expenses 85,950 92,880 Administrative expenses 91,680 77,400

Answer 1

	Innovation Quarter Inc.
	Comparative Income Statement
	For the Years Ended December 31
	Current year Amount	Current year Percent	Previous year Amount	Previous year Percent
Sales	573000	100.0%	516000	100.0%
Cost of goods sold	360990	63.0%	288960	56.0%
Gross Profit	212010	37.0%	227040	44.0%
Selling expenses	85950	15.0%	92880	18.0%
Administrative expenses	91680	16.0%	77400	15.0%
Total operating expenses	177630	31.0%	170280	33.0%
Income from operations	34380	6.0%	56760	11.0%
Income tax expense	11460	2.0%	20640	4.0%
Net income	22920	4.0%	36120	7.0%
2
The vertical analysis indicates that the cost of goods sold as a percent of sales increased by 7 percentage points,
while selling expenses decreased by 3 percentage points, and administrative expenses increased by 1 percentage points.
Thus, net income as a percent of sales decreased by 3 percentage points