Question

Cuneo Company’s income statements for the last 3 years are as follows: Cuneo Company Income Statements For the Years 1, 2, and 3 1 Year 1 Year 2 Year 3 2 Sales $1,000,000.00 $1,200,000.00 $1,700,000.00 3 Less: Cost of goods sold (700,000.00) (700,000.00) (1,000,000.00) 4 Gross margin $300,000.00 $500,000.00 $700,000.00 5 Less operating expenses: 6 Selling expenses (150,000.00) (220,000.00) (250,000.00) 7 Administrative expenses (50,000.00) (60,000.00) (120,000.00) 8 Operating income $100,000.00 $220,000.00 $330,000.00 9 Less: 10 Interest expense (25,000.00) (25,000.00) (25,000.00) 11 Income before taxes $75,000.00 $195,000.00 $305,000.00 Required: 1. Prepare a common-size income statement for Year 1 by expressing each line item as a percentage of sales revenue. (Note: Round percentages to the nearest tenth of a percent.) 2. Prepare a common-size income statement for Year 2 by expressing each line item as a percentage of sales revenue. (Note: Round percentages to the nearest tenth of a percent.) 3. Prepare a common-size income statement for Year 3 by expressing each line item as a percentage of sales revenue. (Note: Round percentages to the nearest tenth of a percent.) Refer to the list below for the exact wording of an account title within your income statement. Labels Add Add operating expenses Less Less operating expenses Amount Descriptions Administrative expenses Contribution margin Cost of goods sold Gross margin Income after taxes Income before taxes Interest expense Operating income Sales Selling expenses Total 1. Prepare a common-size income statement for Year 1 by expressing each line item as a percentage of sales revenue. (Note: Enter all amounts as positive numbers. Round answers to the nearest tenth of a percent. Refer to the Labels and Amount Descriptions list provided for the exact wording of the answer choices for text entries.) Cuneo Company Income Statement For Year 1 1 Year 1 Percent of Sales in Year 1 2 3 4 5 (Label) 6 7 8 9 (Label) 10 11 2. Prepare a common-size income statement for Year 2 by expressing each line item as a percentage of sales revenue. (Note: Enter all amounts as positive numbers. Round answers to the nearest tenth of a percent. Refer to the Labels and Amount Descriptions list provided for the exact wording of the answer choices for text entries.) Cuneo Company Income Statement For Year 2 1 Year 2 Percent of Sales in Year 2 2 3 4 5 (Label) 6 7 8 9 (Label) 10 11 3. Prepare a common-size income statement for Year 3 by expressing each line item as a percentage of sales revenue. (Note: Enter all amounts as positive numbers. Round answers to the nearest tenth of a percent. Refer to the Labels and Amount Descriptions list provided for the exact wording of the answer choices for text entries.) Cuneo Company Income Statement For Year 3 1 Year 3 Percent of Sales in Year 3 2 3 4 5 (Label) 6 7 8 9 (Label) 10 11

Answer 1

Cuneo Company
Statement of Income
For the Year 2
	Year-2		Year-1
Sales	$12,00,000	83.3%	$10,00,000
Less: Cost of goods sold	-$7,00,000	100.0%	-$7,00,000
Gross margin	$5,00,000	60.0%	$3,00,000
Less: Operating Expenses:
Selling Expenses	-$2,20,000	68.2%	-$1,50,000
Administrative expeses	-$60,000	83.3%	-$50,000
Operating Income	$2,20,000	45.5%	$1,00,000
Less:
Interest Expense	-$25,000	100.0%	-$25,000
Income before taxes	$1,95,000	38.5%	$75,000
Cuneo Company
Statement of Income
For the Year 2
	Year-3		Year-1
Sales	$17,00,000	58.8%	$10,00,000
Less: Cost of goods sold	-$10,00,000	70.0%	-$7,00,000
Gross margin	$7,00,000	42.9%	$3,00,000
Less: Operating Expenses:
Selling Expenses	-$2,50,000	60.0%	-$1,50,000
Administrative expeses	-$1,20,000	41.7%	-$50,000
Operating Income	$3,30,000	30.3%	$1,00,000
Less:
Interest Expense	-$25,000	100.0%	-$25,000
Income before taxes	$3,05,000	24.6%	$75,000