Question

E13-1 Preparing and Interpreting a Schedule for Horizontal and Vertical Analyses [LO 13-2, LO 13-3, LO 13-5]

The average price of a gallon of gas in 2015 dropped $0.94 (28 percent) from $3.34 in 2014 (to $2.40 in 2015).

Required:

1. Conduct a horizontal analysis by calculating the year-over-year changes in each line item, expressed in dollars and in percentages for the income statement of Insignia Corporation for the year ended December 31, 2015 (amounts in billions).
2-a. Conduct a vertical analysis by expressing each line as a percentage of total revenues.
2-b. Excluding income tax and other operating costs, did Insignia earn more profit per dollar of revenue in 2015 compared to 2014?

  

REQ 1:

Conduct a horizontal analysis by calculating the year-over-year changes in each line item, expressed in dollars and in percentages for the income statement of Insignia Corporation for the year ended December 31, 2015 (amounts in billions). (Decreases should be indicated by a minus sign. Enter your answers in billions (i.e., 10,000,000,000 should be entered as 10). Round percentage values to 1 decimal place.)

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	INSIGNIA CORPORATION Income Statements (amounts in billions) For the Year Ended December 31 Change in 2015 2014 Dollars Percentage Revenues $124 $247 % Cost of Crude Oil and Products 62 142 % Other Operating Costs 57 52 % Income before Income Tax Expense 5 53 % Income Tax Expense 0 31 % Net Income $5 $22 %

REQ 1A:

Conduct a vertical analysis by expressing each line as a percentage of total revenues. (Round percentage values to 1 decimal place.)

	INSIGNIA CORPORATION Income Statements (amounts in billions) For the Year Ended December 31 2015 2014 Revenues $124 % $247 % Cost of Crude Oil and Products 62 % 142 % Other Operating Costs 57 % 52 % Income before Income Tax Expense 5 % 53 % Income Tax Expense 0 % 31 % Net Income $5 % $22 %

REQ 2:

Excluding income tax and other operating costs, did Insignia Corporation earn more profit per dollar of revenue in 2015 compared to 2014?

	Yes No

Answer 1

INSIGNIA CORPORATION
Income Statements
(amount in billions)
For the Year Ended December 31
			Change in
	2015	2014	Dollars	Percentage
Revenue	$ 124	$ 247	(123)	(123)/247 = (49.8)%
Cost of crude oil and products	62	142	(80)	(80)/142 = (56.3)%
Other operating costs	57	52	5	5/52 = 9.6%
Income before Income Tax Expense	5	53	(48)	(48)/53 = (90.6)%
Income tax expense	0	31	(31)	(31)/31 = (100)%
Net Income	$ 5	$ 22	(17)	(17)/22 = (77.3)%

2)

INSIGNIA CORPORATION
Income Statements
(amount in billions)
For the Year Ended December 31
	2015		2014
Revenues	$ 124	100%	$ 247	100%
Cost of crude oil and products	62	50%	142	57.5%
Other operating costs	57	46%	52	21.1%
Income before Income Tax expense	5	4.0%	53	21.5%
Income Tax expense	0	0	31	12.6%
Net Income	$ 5	4.0%	$ 22	8.9%

3) No, after excluding Income tax and other operating costs, Insignia Corporation did not earn more profit per dollar of revenue in 2015 compared to 2014