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

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 $523,000 $450,000
Cost of goods sold 277,190 207,000
Selling expenses 99,370 99,000
Administrative expenses 104,600 85,500
Income tax expense 15,690 22,500

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 $523,000 fill in the blank a10abe045ffe07e_1% $450,000 fill in the blank a10abe045ffe07e_2%
Cost of goods sold 277,190 fill in the blank a10abe045ffe07e_3% 207,000 fill in the blank a10abe045ffe07e_4%
$fill in the blank a10abe045ffe07e_6 fill in the blank a10abe045ffe07e_7% $fill in the blank a10abe045ffe07e_8 fill in the blank a10abe045ffe07e_9%
Selling expenses 99,370 fill in the blank a10abe045ffe07e_10% 99,000 fill in the blank a10abe045ffe07e_11%
Administrative expenses 104,600 fill in the blank a10abe045ffe07e_12% 85,500 fill in the blank a10abe045ffe07e_13%
$fill in the blank a10abe045ffe07e_15 fill in the blank a10abe045ffe07e_16% $fill in the blank a10abe045ffe07e_17 fill in the blank a10abe045ffe07e_18%
fill in the blank a10abe045ffe07e_20 fill in the blank a10abe045ffe07e_21% fill in the blank a10abe045ffe07e_22 fill in the blank a10abe045ffe07e_23%
Income tax expense 15,690 fill in the blank a10abe045ffe07e_24% 22,500 fill in the blank a10abe045ffe07e_25%
$fill in the blank a10abe045ffe07e_27 fill in the blank a10abe045ffe07e_28% $fill in the blank a10abe045ffe07e_29 fill in the blank a10abe045ffe07e_30%

b. The vertical analysis indicates that the cost of goods sold as a percent of sales   by 7 percentage points, while selling expenses   by 3 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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Answer #1
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 523000 100.0% 450000 100.0%
Cost of goods sold 277190 53.0% 207000 46.0%
Gross profit 245810 47.0% 243000 54.0%
Selling expenses 99370 19.0% 99000 22.0%
Administrative expenses 104600 20.0% 85500 19.0%
Total operating expenses 203970 39.0% 184500 41.0%
Income from operations 41840 8.0% 58500 13.0%
Income tax expense 15690 3.0% 22500 5.0%
Net income 26150 5.0% 36000 8.0%
b
The vertical analysis indicates that the cost of goods sold as a percent of sales increased by 7 percentage points, while selling expenses decreased by 3 percentage points, and administrative expenses increased by 1 percentage points Thus, net income as a percent of sales decreased by 3 percentage points.
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