Question

Revenue and expense data for Innovation Quarter Inc. for two recent years are as follows:

	Current Year		Previous Year
Sales	$597,000		$543,000
Cost of goods sold	370,140		304,080
Selling expenses	89,550		97,740
Administrative expenses	101,490		81,450
Income tax expense	11,940		21,720

a. Prepare an income statement in comparative form, stating each item for both years as a percent of sales. If required, round percentages to one decimal place. Enter all amounts as positive numbers.

Innovation Quarter Inc.
Comparative Income Statement
For the Years Ended December 31
	Current year Amount	Current year Percent	Previous year Amount	Previous year Percent
Sales	$597,000	%	$543,000	%
Cost of goods sold	370,140	%	304,080	%
Gross profit	$	%	$	%
Selling expenses	89,550	%	97,740	%
Administrative expenses	101,490	%	81,450	%
Total operating expenses	$	%	$	%
Income from operations		%		%
Income tax expense	11,940	%	21,720	%
Net income	$	%	$	%

b. The vertical analysis indicates that the cost of goods sold as a percent of sales by 6 percentage points, while selling expenses by 3 percentage points, and administrative expenses by 2 percentage points. Thus, net income as a percent of sales by 3 percentage points.

Answer 1

Innovation Quarter Inc.
Comparative Income Statement
For the Years Ended December 31
	Current year Amount	Current year Percent	Previous year Amount	Previous year Percent
Sales	597000	100.0%	543000	100.0%
Cost of goods sold	370140	62.0%	304080	56.0%
Gross profit	226860	38.0%	238920	44.0%
Selling expenses	89550	15.0%	97740	18.0%
Administrative expenses	101490	17.0%	81450	15.0%
Total operating expenses	191040	32.0%	179190	33.0%
Income from operations	35820	6.0%	59730	11.0%
Income tax expense	11940	2.0%	21720	4.0%
Net income	23880	4.0%	38010	7.0%
b
The vertical analysis indicates that the cost of goods sold as a percent of sales increased by 6 percentage points,
while selling expenses decreased by 3 percentage points, and administrative expenses increased by 2 percentage points.
Thus, net income as a percent of sales decreased by 3 percentage points.