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)
	2017	2016
Sales revenue	$59,780	$50,360
Cost of goods sold	41,600	30,410
Gross profit	$18,180	$19,950
Selling and administrative expense	8,750	4,850
Operating income	$9,430	$15,100
Interest expense	2,460	2,460
Income before tax	$6,970	$12,640
Income tax expense	2,350	3,780
Net income	$4,620	$8,860

Required:

1. Using the format in Example 13-5, prepare common-size comparative income statements for the two years for Mariners Corp. Round percentages to one decimal point.

Mariners Corp. Common-Size Comparative Income Statements For The Years Ended December 31, 2017 And 2016 (In Thousands of Dollars)

	2017 Dollars	2017 Percent	2016 Dollars	2016 Percent
Income before taxIncome tax expenseOperating incomeSales revenue	$- Select -	- Select - %	$- Select -	- Select - %
Cost of goods soldIncome before taxIncome tax expenseOperating income	- Select -	- Select -	- Select -	- Select -
Gross profit	$fill in the blank 4c7a8900bff7034_11	fill in the blank 4c7a8900bff7034_12 %	$fill in the blank 4c7a8900bff7034_13	fill in the blank 4c7a8900bff7034_14 %
Cost of goods soldInterest payableSales revenueSelling and administrative expense	- Select -	- Select -	- Select -	- Select -
Cost of goods soldInterest payableOperating incomeSales revenue	$- Select -	- Select - %	$- Select -	- Select - %
Cost of goods soldInterest expenseInterest payableSales revenue	- Select -	- Select -	- Select -	- Select -
Cost of goods soldIncome before taxInterest payableSales revenue	$- Select -	- Select - %	$- Select -	- Select - %
Cost of goods soldIncome tax expenseInterest payableSales revenue	- Select -	- Select -	- Select -	- Select -
Net income	$fill in the blank 4c7a8900bff7034_40	fill in the blank 4c7a8900bff7034_41 %	$fill in the blank 4c7a8900bff7034_42	fill in the blank 4c7a8900bff7034_43 %

2. Based on Mariner's common size statements in 2017 compared to 2016, it can be concluded that

1. all of these are true.
2. gross profit as a percentage of sales declined due to higher cost of goods sold.
3. net income decreased both in dollars and as a percentage of sales.
4. selling and administrative expenses increased both in dollars as well as percentage of sales.

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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. Round all percentages to the nearest whole percent. If an answer is zero, enter "0".

Mariners Corp. Comparative Statements of Income For The Years Ended December 31, 2017 And 2016

	December 31, 2017	December 31, 2016	Increase/Decrease Dollars	Increase/Decrease (Percent)
Income before taxIncome tax expenseOperating incomeSales revenue	$- Select -	$- Select -	$- Select -	- Select - %
Cost of goods soldIncome before taxIncome tax expenseOperating income	- Select -	- Select -	- Select -	- Select -
Gross profit	$fill in the blank 05c944f84072016_11	$fill in the blank 05c944f84072016_12	$fill in the blank 05c944f84072016_13	fill in the blank 05c944f84072016_14
Cost of goods soldInterest payableSales revenueSelling and administrative expense	- Select -	- Select -	- Select -	- Select -
Cost of goods soldInterest payableOperating incomeSales revenue	$- Select -	$- Select -	$- Select -	- Select -
Cost of goods soldInterest expenseInterest payableOperating income	- Select -	- Select -	- Select -	- Select -
Cost of goods soldIncome before taxInterest payableSales revenue	$- Select -	$- Select -	$- Select -	- Select -
Cost of goods soldIncome tax expenseInterest payableSales revenue	- Select -	- Select -	- Select -	- Select -
Net income	$fill in the blank 05c944f84072016_40	$fill in the blank 05c944f84072016_41	$fill in the blank 05c944f84072016_42	fill in the blank 05c944f84072016_43

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, where you would look to find additional information about the change.

1. selling and administration expense, and for information refer to individual expense records.
2. Income tax expense, and for information refer to income tax return and supporting records.
3. cost of goods sold, and for information refer to refer to individual expense records.
4. sales revenue, and for information refer to sales ledgers and supporting records.