Question

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

	Current Year		Previous Year
Sales	$381,000		$328,000
Cost of goods sold	220,980		173,840
Selling expenses	64,770		62,320
Administrative expenses	68,580		55,760
Income tax expense	11,430		13,120

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	$381,000	%	$328,000	%
Cost of goods sold	220,980	%	173,840	%
	$	%	$	%
Selling expenses	64,770	%	62,320	%
Administrative expenses	68,580	%	55,760	%
	$	%	$	%
		%		%
Income tax expense	11,430	%	13,120	%
	$	%	$	%

b. The vertical analysis indicates that the cost of goods sold as a percent of sales by 5 percentage points, while selling expenses by 2 percentage points, and administrative expenses by 1 percentage points. Thus, net income as a percent of sales by 3 percentage points.

Answer 1

a.comparitive income statement:(workings are provided in brackets)

	current year amount	current year percent	previous year amount	previous year percent
sales	$381,000	(381,000/381,000*100)=>100%	$328,000	(328,000/328,000*100)=>100%
cost of goods sold	220,980	(220,980/381,000*100)=>58%	173,840	(173,840/328,000*100)=>53%
gross profit	160,020	(160,020/381,000)*100=>42%	154,160	(154,160/328,000*100)=>47%
selling expenses	64,770	(64,770/381,000)*100=>17%	62,320	(62,320/328,000*100)=>19%
administrative expenses	68,580	(68,580/381,000)*100=>18%	55,760	(55,760/328,000*100)=>17%
income before tax (gross profit - expenses)	26,670	(26,670/381,000)*100=>7%	36,080	(36,080/328,000*100)=>11%
income tax	11,430	(11,430/381,000*100)=>3%	13,120	(13,120/328,000*100)=>4%
net income	15,240	(15,240/381,000*100)=>4%	22,960	(22,960/328,000*100)=>7%

b.The vertical analysis indicates that the cost of goods sold as a percent of sales increased by 5 percentage points, while selling expenses reduced by 2 percentage points, and administrative expenses increased by 1 percentage point. Thus net income as a percent of sales decreased by 3 percentage point.