Denny’s CPA School provided the following vertical analysis of its income statements for 1999 and 2000:

Percentage of Revenues 1999 2000 Revenues 100% 100%

Salaries expense 40 45 Rentals expense 20 25 Books and supplies 10 10 Advertising 10 15 Operating income 20 5 Income tax 8 2 Net income 12 3 In addition, Denny’s tuition revenues were $500,000 in 1999 and $400,000 in 2000.

Required

a. Based on the above information, prepare the firm’s income statements for 1999 and 2000.

b. Provide a horizontal analysis of the changes in each item in the income statement.

c. Based on your analysis, comment about the expected future performance of Denny’s CPA School.