Question

Vertical Analysis of Income Statement

For 20Y2, Tri-Comic Company initiated a sales promotion campaign that included the expenditure of an additional $15,000 for advertising. At the end of the year, Lumi Neer, the president, is presented with the following condensed comparative income statement:

Tri-Comic Company Comparative Income Statement For the Years Ended December 31, 20Y2 and 20Y1
	20Y2		20Y1
Sales	$545,000		$469,000
Cost of merchandise sold	261,600		253,260
Gross profit	$283,400		$215,740
Selling expenses	$114,450		$93,800
Administrative expenses	59,950		60,970
Total operating expenses	$174,400		$154,770
Income from operations	$109,000		$60,970
Other revenue	32,700		23,450
Income before income tax expense	$141,700		$84,420
Income tax expense	54,500		32,830
Net income	$87,200		$51,590

Required:

1. Prepare a comparative income statement for the two-year period, presenting an analysis of each item in relationship to sales for each of the years. Enter percentages as whole numbers. Enter all amounts as positive numbers.

Tri-Comic Company
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
	20Y2 Amount	20Y2 Percent	20Y1 Amount	20Y1 Percent
Sales	$545,000	fill in the blank	$469,000	fill in the blank
Cost of merchandise sold	261,600	fill in the blank	253,260	fill in the blank
Gross profit	$283,400	fill in the blank	$215,740	fill in the blank
Selling expenses	$114,450	fill in the blank	$93,800	fill in the blank
Administrative expenses	59,950	fill in the blank	60,970	fill in the blank
Total operating expenses	$174,400	fill in the blank	$154,770	fill in the blank
Income from operations	$109,000	fill in the blank	$60,970	fill in the blank
Other revenue	32,700	fill in the blank	23,450	fill in the blank
Income before income tax expense	$141,700	fill in the blank	$84,420	fill in the blank
Income tax expense	54,500	fill in the blank	32,830	fill in the blank
Net income	$87,200	fill in the blank	$51,590	fill in the blank

2. The vertical analysis indicates that the costs other than selling expenses (cost of merchandise sold and administrative expenses)   as a percentage of sales. As a result, net income as a percentage of sales  . The sales promotion campaign appears to have been  . While selling expenses as a percent of sales   slightly, the   cost was more than made up for by   sale

Answer 1