17-3 17-01

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	$559,000		$503,000
Cost of goods sold	301,860		246,470
Selling expenses	100,620		100,600
Administrative expenses	111,800		95,570
Income tax expense	16,770		25,150

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	$559,000	%	$503,000	%
Cost of goods sold	301,860	%	246,470	%
	$	%	$	%
Selling expenses	100,620	%	100,600	%
Administrative expenses	111,800	%	95,570	%
	$	%	$	%
		%		%
Income tax expense	16,770	%	25,150	%
	$	%	$	%

b. The vertical analysis indicates that the cost of goods sold as a percent of sales (INCREASED/DECREASED)

by 5 percentage points, while selling expenses (INCREASED/DECREASED)

by 2 percentage points, and administrative expenses INCREASED/DECREASED

by 1 percentage points. Thus, net income as a percent of sales (INCREASED/DECREASED)

by 2 percentage points. (INCREASED/DECREASED)