Question

Preparing Income Statements by Using Net Sales as the Base: Vertical Analysislt Jasmine Company provided the following income statements for its first 3 years of operation:

Year 1 Year 2 Year 3

Net sales $5,000,000 $4,500,000 $4,000,000

Less: Cost of goods sold (3,000,000) (3,250,000) (3,600,000)

Gross margin $2,000,000 $1,250,000 $400,000

Less: Operating expenses (1,420,000) (800,000) (165,000)

Income taxes (232,000) (180,000) (134,000)

Net income $348,000 $270,000 $101,000

Required: Prepare common-size income statements by using net sales as the base. Round answers to the nearest whole percentage.

Jasmine Company Income Statement

Year 1 dollars Year 1 percent Year 2 dollars Year 2 percent Year 3 dollars Year 3 percent $ % $ % $ % $ $ $ $ $ $

Answer 1

Answer- JASMINE COMPANY

Common-size Income Statement

	Year 1		Year 2		Year 3
	$	%	$	%	$	%
Sales	5,000,000	100.00	4,500,000	100.00	4,000,000	100.00
Cost of Goods Sold	(3,000,000)	60	(3,250,000)	72.22	(3,600,000)	90
Gross Profit	2,000,000	40	1,250,000	27.78	400,000	10
Operating Expenses	(1,420,000)	28.4	(800,000)	17.78	(165,000)	4.12
Income Taxes	(232,000)	4.64	(180,000)	4	(134,000)	3.35
Net Income	$348,000	6.96	$270,000	6	$101,000	2.53

Note :

	Workings
	Year 1	Year 2	Year 3
Sales	5,000,000/5,000,000*100	4,500,000/ 4,500,000*100	4,000,000/ 4,000,000*100
Cost of Goods Sold	3,000,000/5,000,000*100	3,250,000 / 4,500,000*100	3,600,000/ 4,000,000*100
Gross Profit	2,000,000/ 5,000,000*100	1,250,000/ 4,500,000*100	400,000/ 4,000,000*100
Operating Expenses	1,420,000 / 5,000,000*100	800,000/ 4,500,000*100	165,000/4,000,000*100
Income Taxes	232,000/5,000,000*100	180,000/4,500,000*100	134,000/4,000,000*100
Net Income	348,000 / 5,000,000*100	270,000/ 4,500,000*100	101,000/4,000,000*100

Kindly give thumbs up if u like my answer....Thanks!!!