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Vertical Analysis of Income Statement Revenue and expense data for Innovation Quarter Inc. for two recent...

Vertical Analysis of Income Statement Revenue and expense data for Innovation Quarter Inc. for two recent years are as follows: Current Year Previous Year Sales $620,000 $539,000 Cost of goods sold 353,400 274,890 Selling expenses 105,400 107,800 Administrative expenses 117,800 91,630 Income tax expense 18,600 26,950 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 $620,000 % $539,000 % Cost of goods sold 353,400 % 274,890 % Gross profit $ % $ % Selling expenses 105,400 % 107,800 % Administrative expenses 117,800 % 91,630 % Total operating expenses $ % $ % Income from operations % % Income tax expense 18,600 % 26,950 % 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.

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Comparative Income Statement
For the Years Ended December 31
Current year Amount Current year Percent Previous year Amount Previous year Percent
Sales 620000 100.0% 539000 100.0%
Cost of goods sold 353400 57.0% 274890 51.0%
Gross profit 266600 43.0% 264110 49.0%
Selling expenses 105400 17.0% 107800 20.0%
Administrative expenses 117800 19.0% 91630 17.0%
Total operating expenses 223200 36.0% 199430 37.0%
Income from operations 43400 7.0% 64680 12.0%
Income tax expense 18600 3.0% 26950 5.0%
Net income 24800 4.0% 37730 7.0%
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.

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