Question

Here are the comparative income statements of Carla Vista Corporation.

CARLA VISTA CORPORATION Comparative Income Statement For the Years Ended December 31
		2022		2021
Net sales		$637,500		$555,200
Cost of goods sold		454,100		418,600
Gross Profit		183,400		136,600
Operating expenses		74,500		48,700
Net income		$ 108,900		$ 87,900

(a)

Prepare a horizontal analysis of the income statement data for Carla Vista Corporation, using 2021 as a base. (If amount and percentage are a decrease show the numbers as negative, e.g. -55,000, -20% or (55,000), (20%). Round percentages to 1 decimal place, e.g. 12.1%.)

CARLA VISTA CORPORATION Comparative Income Statement choose the accounting period For the Years Ended December 31For the Month Ended December 31December 31
					Increase or (Decrease) During 2022
	2022		2021		Amount		Percentage
Net sales	$637,500		$555,200		$enter a dollar amount		enter percentages rounded to 1 decimal place	%
Cost of goods sold	454,100		418,600		enter a dollar amount		enter percentages rounded to 1 decimal place	%
Gross Profit	183,400		136,600		enter a dollar amount		enter percentages rounded to 1 decimal place	%
Operating expenses	74,500		48,700		enter a dollar amount		enter percentages rounded to 1 decimal place	%
Net income	$ 108,900		$ 87,900		$enter a dollar amount		enter percentages rounded to 1 decimal place	%

(b)

Prepare a vertical analysis of the income statement data for Carla Vista Corporation for both years. (Round percentages to 1 decimal place, e.g. 12.1%.)

CARLA VISTA CORPORATION Condensed Income Statements choose the accounting period For the Month Ended December 31December 31For the Years Ended December 31
	2022					2021
	$		Percent			$		Percent
Net sales	$637,500		enter percentages rounded to 1 decimal place	%		$555,200		enter percentages rounded to 1 decimal place	%
Cost of goods sold	454,100		enter percentages rounded to 1 decimal place	%		418,600		enter percentages rounded to 1 decimal place	%
Gross Profit	183,400		enter percentages rounded to 1 decimal place	%		136,600		enter percentages rounded to 1 decimal place	%
Operating expenses	74,500		enter percentages rounded to 1 decimal place	%		48,700		enter percentages rounded to 1 decimal place	%
Net income	$ 108,900		enter percentages rounded to 1 decimal place	%		$ 87,900		enter percentages rounded to 1 decimal place	%

Answer 1

a) Horizontal analysis of Income Statement:

Horizontal Financial Stataements involves the analysis of the financial ratios over the time perio i.e, between different accounting periods. It involves the analysis of sales revenues, cost of sales, expenses , income, equity liabilities etc.

Here we are doing the Horizontal Analysis of Income statements which is the analysis of Sales Revenue, Cost Of Goods Sold, Gross Profiy, Operating Expenses, Net income. For the Analysis 2021 is taken as base amount.

Particulars	2022	2021	Increase or (Decrease) during 2022	Percentage
Net Sales	$637,500	$555,200	$82,300	14.8% [($82,300/$555,200)*100]
Cost Of Goods Sold	$454,100	$418,600	$35,500	8.4% [($35,500/$418,600)*100]
Gross Profit	$183,400	$136,600	$46,800	34.2% [($46,800/$136,600)*100]
Operating Expenses	$74,500	$48,700	$25,800	52.9% [($25,800/$48,700)*100]
Net Income	$108,900	$87,900	$21,000	23.8% [($21,000/$87,900)*100]

Net sales has increased by 14.8% from 2021. Cost of Goods Sold increased slightly by 8.4%. Gross profit increased by 34.2% from 2021. Operating expense has increased significantly by 52.9% $25,800 from $48,7000 in 2021 to $74,500 in 2022.

Nwt income has an increase by 23.8% from $87,900 in 2021.

b) Vertical analysis Of Income Statement:

Vertical Analysis of Income Statement is the analysis of the financial data drawn from the income statement to compare the each of the expenses to the total sales. It means Total Sales is taken as Base amount.

Particulars	2022	Percentage	2021	Percentage
Net Sales	$637,500	100% [($637,500/$637,500)*100]	$555,200	100% [($555,200/$555,200)*100]
Cost Of Goods Sold	$454,100	71.2% [($454,100/$637,500)*100]	$418,600	75.3% [($418,600/$555,200)*100]
Gross Profit	$183,400	28.7% [($183,400/$637,500)*100]	$136,600	24.6% [($136,600/$555,200)*100]
Operating Expenses	$74,500	11.6% [($74,500/$637,500)*100]	$48,700	8.7% [($48,700/$555,200)*100]
Net Income	$108,900	17% [($108,900/$637,500)*100]	$87,900	15.8% [($87,900/$555,200)*100]

Cost Of Goods sold For 2021 is 75.3% of the Net Sales While Operating expenses are 8.7%. So most of the expenses are from Cost of Goods Sold.

Gross Profit for 2021 is 24.6% whilw Net profit is 15.8%

Cost Of Goods sold For 2021 is 71.2% of the Net Sales While Operating expenses are 11.6%. So most of the expenses are from Cost of Goods Sold.

Gross Profit for 2021 is 28.7% whilw Net profit is 17%

It is analyszed that the Cost of Goods sold ratio has decreased from 2021 to 2022 because the sales has increased from $555,200 to $537,500.

Oeerating expenses has increased from 8.7% to 11.6% due to increase in sales.

Gross Profit and Net Profit is also increased from 24.6% and 15.8% in 2021 to 28.7% and 17% in 2022 respectively.