6.
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 | $554,000 | $499,000 | ||
Cost of goods sold | 326,860 | 269,460 | ||
Selling expenses | 88,640 | 89,820 | ||
Administrative expenses | 99,720 | 84,830 | ||
Income tax expense | 16,620 | 19,960 |
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.
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 | $554,000 | % | $499,000 | % |
Cost of goods sold | 326,860 | % | 269,460 | % |
$ | % | $ | % | |
Selling expenses | 88,640 | % | 89,820 | % |
Administrative expenses | 99,720 | % | 84,830 | % |
$ | % | $ | % | |
% | % | |||
Income tax expense | 16,620 | % | 19,960 | % |
$ | % | $ | % |
b. The vertical analysis indicates that the cost of goods sold as a percent of sales by 5 percentage points, while selling expenses by 2 percentage points, and administrative expenses by 1 percentage points. Thus, net income as a percent of sales by 3 percentage points.
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