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

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.

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