Question

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	$454,000		$409,000
Cost of goods sold	267,860		216,770
Selling expenses	72,640		77,710
Administrative expenses	81,720		69,530
Income tax expense	13,620		16,360

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	$454,000	%	$409,000	%
Cost of goods sold	267,860	%	216,770	%
	$	%	$	%
Selling expenses	72,640	%	77,710	%
Administrative expenses	81,720	%	69,530	%
	$	%	$	%
		%		%
Income tax expense	13,620	%	16,360	%
	$	%	$	%

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 1 percentage points. Thus, net income as a percent of sales   by 3 percentage points.

Answer 1