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 2 by expressing each line item for Year 2 as a percentage of that same line item from Year 1. (Note: Round percentages to the nearest tenth of a percent.)
2.	Prepare a common-size income statement for Year 3 by expressing each line item for Year 3 as a percentage of that same line item from Year 1. (Note: Round percentages to the nearest tenth of a percent.)

Labels and Amount Descriptions

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

Common-Size Income Statement

1. Prepare a common-size income statement for Year 2 by expressing each line item for Year 2 as a percentage of that same line item from Year 1. (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 Year 1
2
3
4
5
6
7
8
9
10
11

2. Prepare a common-size income statement for Year 3 by expressing each line item for Year 3 as a percentage of that same line item from Year 1. (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 Year 1
2
3
4
5
6
7
8
9
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