Common-Size Income Statements and Horizontal Analysis Income statements for Mariners Corp. for the past two years are as follows:

(amounts in thousands of dollars)

2010 2009 Sales revenue $60,000 $50,000 Cost of goods sold 42,000 30,000 Gross profi t $18,000 $20,000 Selling and administrative expense 9,000 5,000 Operating income $ 9,000 $15,000 Interest expense 2,000 2,000 Income before tax $ 7,000 $13,000 Income tax expense 2,000 4,000 Net income $ 5,000 $ 9,000 Required 1. Using the format in Example 13-5, prepare common-size comparative income statements for the two years for Mariners Corp.

2. What observations can you make about the common-size statements? List at least four observations.
3. Using the format in Example 13-2, prepare comparative income statements for Mariners Corp., including columns for the dollars and for the percentage increase or decrease in each item on the statement.
4. Identify the two items on the income statement that experienced the largest change from one year to the next. For each of these items, explain where you would look to fi nd additional information about the change.AppendixLO1