Question

14 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	$544,000		$495,000
Cost of goods sold	293,760		242,550
Selling expenses	97,920		99,000
Administrative expenses	108,800		94,050
Income tax expense	16,320		24,750

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	$544,000	%	$495,000	%
Cost of goods sold	293,760	%	242,550	%
	$	%	$	%
Selling expenses	97,920	%	99,000	%
Administrative expenses	108,800	%	94,050	%
	$	%	$	%
		%		%
Income tax expense	16,320	%	24,750	%
	$	%	$	%

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 2 percentage points.

Answer 1