Question

6. Vertical Analysis of Income Statement Revenue and expense data for Innovation Quarter Inc. for two...

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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