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 Statement Decline in Net 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 % $ % $ 735,000 $ 645,000 562,700 286,600 172,300 358,400 130,400 243,200 $ 41,900 $ 115,200 Sales Cost of goods sold Gross profit Operating expenses Net income Income Statement Reason for Decline in Net Income >

Answer 1

GOMEZ CORPORATION
Comparative Income Statements
For Years Ended December 31
	Current year	Prior year
	$	%	$	%
Sales	735000	100.0%	645000	100.0%
Cost of goods sold	562700	76.6%	286600	44.4%
Gross profit	172300	23.4%	358400	55.6%
Operating expenses	130400	17.7%	243200	37.7%
Net income	41900	5.7%	115200	17.9%

Using the common-size percentages, which item is most responsible for the decline in net income?	Cost of goods sold
Reason : In prior year the cost of goods sold was 44.4%, which has increased to 76.6% in the current year, due to which the net income has declined