Question

Revenue and expense data for Innovation Quarter Inc. for two recent years are as follows:

	Current Year		Previous Year
Sales	$408,000		$367,000
Cost of goods sold	265,200		220,200
Selling expenses	57,120		58,720
Administrative expenses	61,200		51,380
Income tax expense	8,160		14,680

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	$408,000	%	$367,000	%
Cost of goods sold	265,200	%	220,200	%
	$	%	$	%
Selling expenses	57,120	%	58,720	%
Administrative expenses	61,200	%	51,380	%
	$	%	$	%
		%		%
Income tax expense	8,160	%	14,680	%
	$	%	$	%

b. The vertical analysis indicates that the cost of goods sold as a percent of sales   by 5 percentage points, while selling expenses   by 2 percentage points, and administrative expenses   by 1 percentage points. Thus, net income as a percent of sales   by 2 percentage points.

Answer 1

Solution

Innovation Quarter Inc
Comparative Income Statement
For the Years Ended December 31
Current year	Previous year amount
Sales	$ 408,000	100.0%	$ 367,000	100.0%
Cost of goods sold	$ 265,200	65.0%	$ 220,200	60.0%
Gross profit	$ 142,800	35.0%	$ 146,800	40.0%
Selling expenses	$ 57,120	14.0%	$ 58,720	16.0%
Administrative expenses	$ 61,200	15.0%	$ 51,380	14.0%
Total operating expenses	$ 118,320	29.0%	$ 110,100	30.0%
Income before income tax	$ 24,480	6.0%	$ 36,700	10.0%
Income tax expense	$ 8,160	2.0%	$ 14,680	4.0%
Net income	$ 16,320	4.0%	$ 22,020	6.0%

.

The Vertical analysis indicated that cost of goods sold as a percentage of sales Increased by 5 Pertage points, While selling expenses Decreased by 2 percentage points, and administrative expenses Increased by 1 percentage points.Thus net income as a percentage of sales Decreased by 2 percentage points.