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

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.

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Expert Solution

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 454000 100.0% 409000 100.0%
Cost of goods sold 267860 59.0% 216770 53.0%
Gross profit 186140 41.0% 192230 47.0%
Selling expenses 72640 16.0% 77710 19.0%
Administrative expenses 81720 18.0% 69530 17.0%
Total operating expenses 154360 34.0% 147240 36.0%
Income from operations 31780 7.0% 44990 11.0%
Income tax expense 13620 3.0% 16360 4.0%
Net income 18160 4.0% 28630 7.0%
b
The vertical analysis indicates that the cost of goods sold as a percent of sales increased by 6 percentage points, while selling expenses decreased by 3 percentage points, and administrative expenses increased by 1 percentage points Thus, net income as a percent of sales decreased by 3 percentage points.

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