1. Vertical Analysis of Income Statement

For 20Y2, Tri-Comic Company initiated a sales promotion campaign that included the expenditure of an additional $20,000 for advertising. At the end of the year, Lumi Neer, the president, is presented with the following condensed comparative income statement:

Tri-Comic Company Comparative Income Statement For the Years Ended December 31, 20Y2 and 20Y1
	20Y2		20Y1
Sales	$703,000		$605,000
Cost of merchandise sold	316,350		296,450
Gross profit	$386,650		$308,550
Selling expenses	$140,600		$114,950
Administrative expenses	70,300		72,600
Total operating expenses	$210,900		$187,550
Income from operations	$175,750		$121,000
Other revenue	35,150		36,300
Income before income tax expense	$210,900		$157,300
Income tax expense	84,360		60,500
Net income	$126,540		$96,800

Required:

- Prepare a comparative income statement for the two-year period, presenting an analysis of each item in relationship to sales for each of the years. Enter percentages as whole numbers. Enter all amounts as positive numbers.

Tri-Comic Company Comparative Income Statement For the Years Ended December 31, 20Y2 and 20Y1

	20Y2 Amount	20Y2 Percent	20Y1 Amount	20Y1 Percent
Sales	$703,000	fill in the blank f0836d0ef006f9e_1%	$605,000	fill in the blank f0836d0ef006f9e_2%
Cost of merchandise sold	316,350	fill in the blank f0836d0ef006f9e_3%	296,450	fill in the blank f0836d0ef006f9e_4%
Gross profit	$386,650	fill in the blank f0836d0ef006f9e_5%	$308,550	fill in the blank f0836d0ef006f9e_6%
Selling expenses	$140,600	fill in the blank f0836d0ef006f9e_7%	$114,950	fill in the blank f0836d0ef006f9e_8%
Administrative expenses	70,300	fill in the blank f0836d0ef006f9e_9%	72,600	fill in the blank f0836d0ef006f9e_10%
Total operating expenses	$210,900	fill in the blank f0836d0ef006f9e_11%	$187,550	fill in the blank f0836d0ef006f9e_12%
Income from operations	$175,750	fill in the blank f0836d0ef006f9e_13%	$121,000	fill in the blank f0836d0ef006f9e_14%
Other revenue	35,150	fill in the blank f0836d0ef006f9e_15%	36,300	fill in the blank f0836d0ef006f9e_16%
Income before income tax expense	$210,900	fill in the blank f0836d0ef006f9e_17%	$157,300	fill in the blank f0836d0ef006f9e_18%
Income tax expense	84,360	fill in the blank f0836d0ef006f9e_19%	60,500	fill in the blank f0836d0ef006f9e_20%
Net income	$126,540	fill in the blank f0836d0ef006f9e_21%	$96,800	fill in the blank f0836d0ef006f9e_22%

- The vertical analysis indicates that the costs other than selling expenses (cost of merchandise sold and administrative expenses) improved/deteriorated as a percentage of sales. As a result, net income as a percentage of sales increased/decreased. The sales promotion campaign appears to have been successful/unsuccessful. While selling expenses as a percent of sales increased/decreased slightly, the increased/decreased cost was more than made up for by increased/decreased sales.