Question

4.

Vertical Analysis of Income Statement

For 20Y2, Tri-Comic Company initiated a sales promotion campaign that included the expenditure of an additional $23,000 for advertising. At the end of the year, Lumi Neer, the president, is presented with the following condensed comparative income statement:

Tri-Comic Company Comparative Income Statement For the Years Ended December 31, 20Y2 and 20Y1
	20Y2		20Y1
Sales	$804,000		$691,000
Cost of goods sold	393,960		380,050
Gross profit	$410,040		$310,950
Selling expenses	$160,800		$131,290
Administrative expenses	88,440		89,830
Total operating expenses	$249,240		$221,120
Income from operations	$160,800		$89,830
Other income	48,240		41,460
Income before income tax	$209,040		$131,290
Income tax expense	80,400		55,280
Net income	$128,640		$76,010

Required:

1. Prepare a comparative income statement for the two-year period, presenting an analysis of each item in relationship to sales for each of the years. Enter percentages as whole numbers. Enter all amounts as positive numbers.

Tri-Comic Company
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
	20Y2 Amount	20Y2 Percent	20Y1 Amount	20Y1 Percent
Sales	$804,000	%	$691,000	%
Cost of goods sold	393,960	%	380,050	%
Gross profit	$410,040	%	$310,950	%
Selling expenses	160,800	%	131,290	%
Administrative expenses	88,440	%	89,830	%
Total operating expenses	$249,240	%	$221,120	%
Income from operations	$160,800	%	$89,830	%
Other income	48,240	%	41,460	%
Income before income tax	$209,040	%	$131,290	%
Income tax expense	80,400	%	55,280	%
Net income	$128,640	%	$76,010	%

2. The vertical analysis indicates that the costs other than selling expenses (cost of goods sold and administrative expenses)   as a percentage of sales. As a result, net income as a percentage of sales  . The sales promotion campaign appears to have been  . While selling expenses as a percent of sales   slightly, the   cost was more than made up for by   sales.

Answer 1

Correct Answer:

Tri-Comic Company
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
	20Y2 Amount	20Y2 Percent	20Y1 Amount	20Y1 Percent
		Amount / sales *100		Amount / sales *100
Sales	$                 804,000	100%	$                691,000	100%
Cost of goods sold	$                 393,960	49%	$                380,050	55%
Gross profit	$                 410,040	51%	$                310,950	45%
Selling expenses	$                 160,800	20%	$                131,290	19%
Administrative expenses	$                   88,440	11%	$                  89,830	13%
Total operating expenses	$                 249,240	31%	$                221,120	32%
Income from operations	$                 160,800	20%	$                  89,830	13%
Other income	$                   48,240	6%	$                  41,460	6%
Income before income tax	$                 209,040	26%	$                131,290	19%
Income tax expense	$                   80,400	10%	$                  55,280	8%
Net income	$                 128,640	16%	$                  76,010	11%

End of answer.

Thanks.