Question

Common-Size Income Statements and Horizontal Analysis

Income statements for Mariners Corp. for the past two years are as follows:

	(amounts in thousands of dollars)
	2017	2016
Sales revenue	$60,000	$50,000
Cost of goods sold	42,000	30,000
Gross profit	$18,000	$20,000
Selling and administrative expense	9,000	5,000
Operating income	$9,000	$15,000
Interest expense	2,000	2,000
Income before tax	$7,000	$13,000
Income tax expense	2,000	4,000
Net income	$5,000	$9,000

Required:

1. Using the format in Example 13-5, prepare common-size comparative income statements for the two years for Mariners Corp. Round percentages to one decimal point.

Mariners Corp.
Common-Size Comparative Income Statements
For The Years Ended December 31, 2017 And 2016 (In Thousands of Dollars)
	2017 Dollars	2017 Percent	2016 Dollars	2016 Percent
Sales revenue	$	%	$	%
Cost of goods sold
Gross profit	$	%	$	%
Selling and administrative expense
Operating income	$	%	$	%
Interest expense
Income before tax	$	%	$	%
Income tax expense
Net income	$	%	$	%

Feedback

Prepare in correct form common-size comparative income statements for two years. Set up with five columns.

2. Based on Mariner's common size statements in 2017 compared to 2016, it can be concluded that

all of these are true.

gross profit as a percentage of sales declined due to higher cost of goods sold.

net income decreased both in dollars and as a percentage of sales.

selling and administrative expenses increased both in dollars as well as percentage of sales.

a

Feedback

Correct

3. Using the format in Example 13-2, prepare comparative income statements for Mariners Corp., including columns for the dollars and for the percentage increase or decrease in each item on the statement. Round all percentages to the nearest whole percent. If an answer is zero, enter "0".

Mariners Corp.
Comparative Statements of Income
For The Years Ended December 31, 2017 And 2016
	December 31, 2017	December 31, 2016	Increase/Decrease Dollars	Increase/Decrease (Percent)
Sales revenue	$	$	$	%
Cost of goods sold
Gross profit	$	$	$
Selling and administrative expense
Operating income	$	$	$
Interest expense
Income before tax	$	$	$
Income tax expense
Net income	$	$	$

Answer 1

Answer

Mariners Corp.
Common-Size Comparative Income Statements
For The Years Ended December 31, 2017 And 2016 (In Thousands of Dollars)
	2017 Dollars	2017 Percent	2016 Dollars	2016 Percent
Sales revenue	60,000	100.00%	50,000	100.00%
Cost of goods sold	42,000	70.00%	30,000	60.00%
Gross profit	18,000	30.00%	20,000	40.00%
Selling and administrative expense	9,000	15.00%	5,000	10.00%
Operating income	9,000	15.00%	15,000	30.00%
Interest expense	2,000	3.33%	2,000	4.00%
Income before tax	7,000	11.67%	13,000	26.00%
Income tax expense	2,000	3.33%	4,000	8.00%
Net income	5,000	8.33%	9,000	18.00%

2.

Yes it is true that

Gross profit as a percentage of sales declined due to higher cost of goods sold.

Net income decreased both in dollars and as a percentage of sales.

Selling and administrative expenses increased both in dollars as well as percentage of sales

3.

Mariners Corp.
Comparative Statements of Income
For The Years Ended December 31, 2017 And 2016
	31-Dec-17	31-Dec-16	Increase/Decrease Dollars	Increase/Decrease (Percent)
Sales revenue	60,000	50,000	10,000	20.00%
Cost of goods sold	42,000	30,000	12,000	40.00%
Gross profit	18,000	20,000	(2,000)	-10.00%
Selling and administrative expense	9,000	5,000	4,000	80.00%
Operating income	9,000	15,000	(6,000)	-40.00%
Interest expense	2,000	2,000	-	0.00%
Income before tax	7,000	13,000	(6,000)	-46.15%
Income tax expense	2,000	4,000	(2,000)	-50.00%
Net income	5,000	9,000	(4,000)	-44.44%