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

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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

Mariner's corporation

Common size income statement for the year ended December 2016 and 2017

Particulars	2017	%	2016	%
Sales revenue	$60000	100%	$50000	100%
Cost of goods sold	($42000)		($30000)
Gross profit	$18000	30%	$20000	40%
Selling and administrative expenses	($9000)		($5000)
Operating income	$9000	15%	$15000	30%
Interest expense	($2000)		($2000)
Income before tax	$7000	11.67%	$13000	26%
Income tax expense	($2000)		($4000)
Net income	$5000	8.33%	$9000	18%

Comparitive income statement for the year ended December 31 2016 and 2017

Particulars	2017	2016	Increase / Decrease	%
Sales	$60000	$50000	$10000	20%
Cost of goods sold	($42000)	($30000)	$12000	40%
Gross profit	$18000	$20000	($2000)	(10%)
Selling and administrative expenses	($9000)	($5000)	$4000	80%
Operating income	$9000	$15000	($6000)	(40%)
Interest expense	($2000)	($2000)	$0	0
Income before tax	$7000	$13000	($6000)	(46%)
Income tax	($2000)	($4000)	($2000)	(50%)
Net income	$5000	$9000	($4000)	(44%).