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.)

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
6
7
8
9
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
6
7
8
9
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
6
7
8
9
10
11

Answer 1

Cuneo Company
Statement of Income
For the Year 1
	Year 1
Sales	$   1,000,000	100.0%
Less: Cost of goods sold	$    (700,000)	70.0%
Gross margin	$      300,000	30.0%
Less: Operating Expenses:
Selling Expenses	$     (150,000)	15.0%
Administrative expeses	$      (50,000)	5.0%
Operating Income	$      100,000	10.0%
Less:
Interest Expense	$       (25,000)	2.5%
Income before taxes	$        75,000	7.5%

Cuneo Company
Statement of Income
For the Year 2
	Year 2
Sales	$ 1,200,000	100.0%
Less: Cost of goods sold	$ (700,000)	58.3%
Gross margin	$ 500,000	41.7%
Less: Operating Expenses:
Selling Expenses	$ (220,000)	18.3%
Administrative expeses	$   (60,000)	5.0%
Operating Income	$   220,000	18.3%
Less:
Interest Expense	$    (25,000)	2.1%
Income before taxes	$    195,000	16.3%

Cuneo Company
Statement of Income
For the Year 3
	Year 3
Sales	$ 1,700,000	100.0%
Less: Cost of goods sold	$(1,000,000)	58.8%
Gross margin	$    700,000	41.2%
Less: Operating Expenses:
Selling Expenses	$   (250,000)	14.7%
Administrative expeses	$    (120,000)	7.1%
Operating Income	$     330,000	19.4%
Less:
Interest Expense	$     (25,000)	1.5%
Income before taxes	$     305,000	17.9%