4.

Vertical Analysis of Income Statement

For 20Y2, Tri-Comic Company initiated a sales promotion campaign that included the expenditure of an additional $23,000 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	$804,000		$691,000
Cost of goods sold	393,960		380,050
Gross profit	$410,040		$310,950
Selling expenses	$160,800		$131,290
Administrative expenses	88,440		89,830
Total operating expenses	$249,240		$221,120
Income from operations	$160,800		$89,830
Other income	48,240		41,460
Income before income tax	$209,040		$131,290
Income tax expense	80,400		55,280
Net income	$128,640		$76,010

Required:

1. 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	$804,000	%	$691,000	%
Cost of goods sold	393,960	%	380,050	%
Gross profit	$410,040	%	$310,950	%
Selling expenses	160,800	%	131,290	%
Administrative expenses	88,440	%	89,830	%
Total operating expenses	$249,240	%	$221,120	%
Income from operations	$160,800	%	$89,830	%
Other income	48,240	%	41,460	%
Income before income tax	$209,040	%	$131,290	%
Income tax expense	80,400	%	55,280	%
Net income	$128,640	%	$76,010	%

2. The vertical analysis indicates that the costs other than selling expenses (cost of goods sold and administrative expenses) as a percentage of sales. As a result, net income as a percentage of sales . The sales promotion campaign appears to have been . While selling expenses as a percent of sales slightly, the cost was more than made up for by sales.