Question

Common-Sized Income Statement

Revenue and expense data for the current calendar year for Sorenson Electronics Company and for the electronics industry are as follows. Sorenson Electronics Company data are expressed in dollars. The electronics industry averages are expressed in percentages.

	Sorenson Electronics Company			Electronics Industry Average
Sales	$1,440,000			100	%
Cost of goods sold	(964,800)			(73)
Gross profit	$475,200			27	%
Selling expenses	$(273,600)			(11)	%
Administrative expenses	(100,800)			(10)
Total operating expenses	$(374,400)			(21)	%
Operating income	$100,800			6	%
Other revenue and expense:
Other revenue	28,800			4
Other expense	(14,400)			(3)
Income before income tax	$115,200			7	%
Income tax expense	(43,200)			(5)
Net income	$72,000			2	%

a. Prepare a common-sized income statement comparing the results of operations for Sorenson Electronics Company with the industry average. If required, round percentages to one decimal place.

Sorenson Electronics Company
Common-Sized Income Statement
	Sorenson Electronics Company Amount	Sorenson Electronics Company Percent	Electronics Industry Average
Sales	$1,440,000	%	100%
Cost of Goods Sold	(964,800)	%	(73)%
Gross profit	$475,200	%	27%
Selling Expenses	$(273,600)	%	(11)%
Administrative Expenses	(100,800)	%	(10)%
Total operating expenses	$(374,400)	%	(21)%
Operating income	$100,800	%	6%
Other revenue and expense:
Other revenue	28,800	%	4%
Other expense	(14,400)	%	(3)%
Income before income tax	$115,200	%	7%
Income tax expense	(43,200)	%	(5)%
Net income	$72,000	%	2%

b. Which of the following statements is true about Sorenson Electronics Company?

Answer 1

Sorenson Electronics Company
Common-Sized Income Statement
	Sorenson Electronics Company Amount	Sorenson Electronics Company Amount	Electronics Industry Average
Sales	1440000	100.0%	100%
Cost of goods sold	-964800	-67.0%	-73%
Gross profit	475200	33.0%	27%
Selling expenses	-273600	-19.0%	-11%
Administrative expenses	-100800	-7.0%	-10%
Total operating expenses	-374400	-26.0%	-21%
Operating income	100800	7.0%	6%
Other revenue and expense:
Other revenue	28800	2.0%	4%
Other expense	-14400	-1.0%	-3%
Income before income tax	115200	8.0%	7%
Income tax expense	-43200	-3.0%	-5%
Net income	72000	5.0%	2%

The common-sized income statement is prepared by depicting every line item in the income statement as a percentage of sales.