Question

For 20Y2, Tri-Comic Company initiated a sales promotion campaign that included the expenditure of an additional $21,000 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	$758,000		$652,000
Cost of goods sold	379,000		365,120
Gross profit	$379,000		$286,880
Selling expenses	$151,600		$123,880
Administrative expenses	83,380		84,760
Total operating expenses	$234,980		$208,640
Income from operations	$144,020		$78,240
Other revenue	30,320		26,080
Income before income tax	$174,340		$104,320
Income tax expense	68,220		39,120
Net income	$106,120		$65,200

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	$758,000	%	$652,000	%
Cost of goods sold	379,000	%	365,120	%
Gross profit	$379,000	%	$286,880	%
Selling expenses	151,600	%	123,880	%
Administrative expenses	83,380	%	84,760	%
Total operating expenses	$234,980	%	$208,640	%
Income from operations	$144,020	%	$78,240	%
Other revenue	30,320	%	26,080	%
Income before income tax	$174,340	%	$104,320	%
Income tax expense	68,220	%	39,120	%
Net income	$106,120	%	$65,200	%

2. The vertical analysis indicates that the costs other than selling expenses (cost of goods 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   sales.

Answer 1

(1)-The comparative income statement for the two-year period.

Tri-Comic Company
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
	20Y2 Amount	20Y2 Percent	20Y1 Amount	20Y1 Percent
Sales	758,000	100%	652,000	100%
Cost of goods sold	379,000	50%	365,120	56%
Gross profit	379,000	50%	286,880	44%
Selling expenses	151,600	20%	123,880	19%
Administrative expenses	83,380	11%	84,760	13%
Total operating expenses	234,980	31%	208,640	32%
Income from operations	144,020	19%	78,240	12%
Other revenue	30,320	4%	26,080	4%
Income before income tax	174,340	23%	104,320	16%
Income tax expense	68,220	9%	39,120	6%
Net income	106,120	14%	65,200	10%

(2)-The vertical analysis indicates that the costs other than selling expenses (cost of goods sold and administrative expenses) DECREASED as a percentage of sales. As a result, net income as a percentage of sales INCREASED BY 4%. The sales promotion campaign appears to have been INCERASED. While selling expenses as a percent of sales INCREASED slightly, the DECREASED cost was more than made up for by   sales.