Question

Instructions: 1. Prepare a comparative income statement for the two-year period, presenting a vertical analysis of each item in relationship to sales for each of the years Fishing Experiences Inc. Comparative Income Statement For the Years Ended December 31, 20Y6 and 2OYS 20Y6 Amount 20Y6 Percent 20Y5 Amount 20Y5 Percent Sales Cost of goods sold Gross profit Selling expenses Administrative expenses Total operating expenses Operating income Other revenue Income before income tax Income tax expense Net income $734,000 (330,300) $403,700 $(161,480) (73,400) $(234,880) $168,820 29,360 $198,180 (80,740) $631,000 (309,190) $321,810 $(126,200) (82,030) $(208,230) $113,580 25,240 $138,820 (56,790) $82,030 $117,440- % 2. Based on the vertical analysis prepared in 1 which of the following statements is correct? a. Costs other than selling expenses (cost of goods sold and administrative expenses) improved as a percentage of sales b. Net income as a percentage of sales increased c. The sales promotion campaign appears to have been successful d. Selling expenses as a percent of sales increased slightly

Answer 1

Requirement 1

Solution is provided taking Percentages in 2 decimal places

Fishing Experiences Inc.
Comparative Income statement
For the year ended December 31, 20Y6 and 20Y5
	20Y6 Amount	20Y6 Percent	20Y5 Amount	20Y5 Percent
Sales	$    734,000.00	100.00%	$    631,000.00	100.00%
Cost of Goods sold	$ (330,300.00)	45.00%	$ (309,190.00)	49.00%
Gross profit	$    403,700.00	55.00%	$    321,810.00	51.00%
Selling expenses	$ (161,480.00)	22.00%	$ (126,200.00)	20.00%
Administrative expenses	$    (73,400.00)	10.00%	$    (82,030.00)	13.00%
Total Operating expenses	$ (234,880.00)	32.00%	$ (208,230.00)	33.00%
Operating Income	$    168,820.00	23.00%	$    113,580.00	18.00%
Other revenues	$      29,360.00	4.00%	$      25,240.00	4.00%
Income before income tax	$    198,180.00	27.00%	$    138,820.00	22.00%
Income tax expense	$    (80,740.00)	11.00%	$    (56,790.00)	9.00%
Net income	$    117,440.00	16.00%	$      82,030.00	13.00%

Alternative solution with zero decimal places

Fishing Experiences Inc.
Comparative Income statement
For the year ended December 31, 20Y6 and 20Y5
	20Y6 Amount	20Y6 Percent	20Y5 Amount	20Y5 Percent
Sales	$    734,000.00	100%	$    631,000.00	100%
Cost of Good sold	$ (330,300.00)	45%	$ (309,190.00)	49%
Gross profit	$    403,700.00	55%	$    321,810.00	51%
Selling expenses	$ (161,480.00)	22%	$ (126,200.00)	20%
Administrative expenses	$    (73,400.00)	10%	$    (82,030.00)	13%
Total Operating expenses	$ (234,880.00)	32%	$ (208,230.00)	33%
Operating Income	$    168,820.00	23%	$    113,580.00	18%
Other revenues	$      29,360.00	4%	$      25,240.00	4%
Income before income tax	$    198,180.00	27%	$    138,820.00	22%
Income tax expense	$    (80,740.00)	11%	$    (56,790.00)	9%
Net income	$    117,440.00	16%	$      82,030.00	13%

Requirement 2

All the statements from a-d are correct.

Cost other than selling expenses (administrative and cost of goods sold) have improced. Net income as apercentage of sales is increased from 13% to 16%.

Sales promotion campaign seems to be successful because there is increase in sales revenue.

Selling expenses as a percentage on sales are slightly increased from 20% to 22%.