Question

*Exercise 14-2 Operating data for Navarro Corporation are presented below. 2017 2016 Net sales Cost of goods sold Selling expenses Administrative expenses $ 754,000 469,500 124,500 65,000 30,000 65,000 $ 601,500 389,500 67,500 52,000 25,500 67,000 Income tax expense Net income Prepare a schedule showing a vertical analysis for 2017 and 2016. (Round answers to 1 decimal place, e.g. 48.5%.) NAVARRO CORPORATION Condensed Income Statements For the Years Ended December 31 2017 2016 Amount Percent Amount Percent Net sales $ 754,000 $ 601,500 % % Cost of goods sold 469,500 389,500 % % Gross profit 284,500 212,000 % % Selling expenses 124,500 67,500 % % 65,000 52,000 Administrative expenses % % Total operating expenses 189,500 119,500 % % Income before income taxes 95,000 92,500 % % 30,000 25,500 Income taxes expense % % $ 65,000 Net income $ 67,000 % %

Answer 1

Vertical analysis is a method of analyzing financial statements that list each line item as a percentage of a base figure within the statement .the base figure is the sale amount.

                             2017                                                           2016

	amount $	percent %	amount$	percent%
net sales	754000	100	601500	100
cost of goods sold	469500	62.3	389500	64.7
gross profit	284500	37.7	212000	35.2
selling expenses	124500	16.5	67500	11.2
administrative expenses	65000	8.6	52000	8.6
total operating expense	189500	25.1	119500	19.9
income before income tax expense	95000	12.6	92500	15.4
income tax expenses	30000	3.9	25500	4.2
net income	65000	8.6	67000	11.1

working notes

1. net sales

net sales %=(net sales/net sales)*100

for

2017 (754000/754000)*100=100%

2016 (601500/601500)*100=100%

2. cost of goods sold

cost of goods sold %=(cost of goods sold/net sales)*100

for

2017 (469500/754000)*100=62.3%

2016 (389500/601500)*100=64.7%

3. gross profit

gross profit %=(gross profit/net sales)*100

for

2017 (284500/754000)*100=37.7%

2016 (212000/601500)*100=35.2%

4. selling expense

selling expense %=(selling expense/net sales)*100

for

2017 (124500/754000)*100=16.5%

2016 (67500/601500)*100=11.2%

5. administrative expense

administrative expense=(administrative expense/net sales)*100

for

2017 (65000/754000)*100=8.6%

2016 (52000/601500)*100=8.6%

6. total operating expense

total operating expense %=(total operating expense/net sales)*100

for

2017 (189500/754000)*100=25.1%

2016 (119500/601500)*100=19.9%

7. income before income tax expense

income before income tax expense %=(income before income tax expense/net sales)*100

for

2017 (95000/754000)*100=12.6%

2016 (92500/601500)*100=15.4%

8. income tax expense

income tax expense %=(income tax texpense/net sales)*100

for

2017 (30000/754000)*100=3.9%

2013 (25500/601500)*100=4.2%

9. net income

net income %=(net income/net sales)*100

for

2017 (65000/754000)*100=8.6%

2016 (67000/601500)*100=11.1%