Question

Exercise 13-4 Computing and interpreting common-size percents LO P2 Express the following comparative income statements in common-size percents. Using the common-size percentages, which item is most responsible for the decline in net income? Reason for Income Decline in Net Statement Income Express the following comparative income statements in common-size percents. (Round your percentage answers to 1 decimal place.) GOMEZ CORPORATION Comparative Income Statements For Years Ended December 31 Current Year Prior Year $ $ % Sales $ 750,000 $ 665,000 Cost of goods sold 565,400 288,800 Gross profit 184,600 376,200 Operating expenses 129.200 248,000 Net income $ 55,400 $ 128,200 come Statement Reason for Decline in Net Income

Answer 1

Please find the attached sheets for detailed answer,

Summary-

The decline in the net income isn due to increase in cost of goods sold.Which has resulted into decline in gross profit.Although a increase in operating expenses may be seen but the rate of increase in cost of goods sold is higher than Operating expenses.

COGS may have increased due to any urgent situation like current pandemic,where everything is likely to be costly.There may also be other reasons for such decline for e.g Increase in labor rate, increase in material cost etc.

Please comment for any explanation,

Thanks,

X х Cla 9 9.aug - Microsoft Excel Home Insert Page Layout Formulas Data Review View ? X * Cut Times New Rom 11 - A A A 2 Wrap Text General E Copy Paste BI U ra Merge & Center 4.0.09 .00 .0 Insert Delete Format Conditional Format Cell Formatting as Table Styles Styles Format Painter AutoSum - Fill Sort & Find & 2 Clear - Filter - Select Editing Clipboard Font Alignment Number Cells 120 A B с D E F H 1 J к L M N 0 P Q R S T 1 2 Solution- 3 4 5 Prior year 6 7 Gomez corporation Income Statement Current Year $ % Sales 750000 100 Cost of goods sold 565400 75.39 Gross profit 184600 24.61 Operating expenses 129200 17.23 Net Income 55400 7.39 31.96 8 9 $ 665000 288800 376200 248000 128200 % 100 43.43 56.57 37.29 19.28 10 11 12 13 Solution- Using comman-size percentages which is most responsible for decline in net income- The increase in cost of goods sold by 31.96%, is the main reason of decline the net income. 1 14 15 16 17 18 19 20 21 22 23 24 25 Sheet1 Sheet2 Sheet4 Sheet3 Sheet6 Sheets Sheetz Sheets Ready O 100% - + O 07:51 18-09-2020

X х X 123 fr Σ L 7 Cin 9.aug - Microsoft Excel Home Insert Page Layout Formulas Data Review View Pa Define Name - Trace Precedents 5 Show Formulas Calculate Now Use in Formula Trace Dependents Error Checking Insert AutoSum Recently Financial Logical Text Date & Lookup & Math More Name Watch Calculation Calculate Sheet Function Used - Time Reference & Trig. Functions Manager Create from Selection Remove Arrows Remove Arrows - Evaluate Formula Evaluate Formula Window Options Function Library Defined Names Formula Auditing Calculation H23 foc A B с D E F G H 1 J K 1 2 Solution- 3 Gomez corporation 4 Income Statement 5 Current Year 6 $ % $ % 7 Sales 750000 =+D7/D7*100665000 =+F7/F7*100 8 Cost of goods sold 565400 =+D8/D7*100 288800 =+F8/F7*100 =+E8-G8 9 Gross profit =+D7-D8 =+E7-E8 =+F7-F8 =+G7-G8 10 Operating expenses 129200 =+D10/D7*100 248000 =+F10/F7*100 11 Net Income =+D9-D10 =+D11/D7*100 128200 =+F11/F7*100 12 13 Solution- Using comman-size percentages, which is most responsible for decline in net income- The increase in cost 14 1 Prior year 15 16 17 18 19 20 21 22 23 24 25 Sheet1 Sheet2 Sheet4 Sheet3 Sheet6 Sheet8 Sheet7 Sheet5 Ready BO 100% + O X 1 07:52 18-09-2020