Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Dismiss All Please click CONTINUE or WAIT if you receive an unresponsive warning. If you see a Don't ask me again checkbox, please check it.

Dismiss All

Please click "CONTINUE" or "WAIT" if you receive an unresponsive warning. If you see a "Don't ask me again" checkbox, please check it.

Loading . . .

Please click "CONTINUE" or "WAIT" if you receive an unresponsive warning. If you see a "Don't ask me again" checkbox, please check it.

Please Wait ...

Please click "CONTINUE" or "WAIT" if you receive an unresponsive warning.

Vertical analysis

An analysis that compares each item in a current statement with a total amount within the same statement.

of income statement

Instructions

none

Income Statement

none

Final Question

none

View Mode Selection

X

Instructions

For 2016, Indigo Company initiated a sales promotion campaign that included the expenditure of an additional $39,000 for advertising. At the end of the year, Lumi Neer, the president, is presented with the following condensed comparative income statement:

Question not attempted.

Indigo Company

Comparative Income Statement

For the Years Ended December 31, 2016 and 2015

1

2016

2015

2

Sales

$810,000.00

$500,000.00

3

Cost of goods sold

283,500.00

185,000.00

4

Gross profit

$526,500.00

$315,000.00

5

Selling expenses

$162,000.00

$90,000.00

6

Administrative expenses

56,700.00

45,000.00

7

Total operating expenses

$218,700.00

$135,000.00

8

Income from operations

$307,800.00

$180,000.00

9

Other income

72,900.00

45,000.00

10

Income before income tax

$380,700.00

$225,000.00

11

Income tax expense

210,600.00

130,000.00

12

Net income

$170,100.00

$95,000.00

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. Round your percentages to one decimal place. Enter all amounts as positive numbers.
2. To the extent the data permit, comment on the significant relationships revealed by the vertical analysis prepared in (1).

none

X

Income Statement

1. Prepare an income statement in comparative form, stating each item for both years as a percent of sales. Round your percentages to one decimal place. Enter all amounts as positive numbers.

Question not attempted.

Indigo Company

Comparative Income Statement

For the Years Ended December 31, 2016 and 2015

1

2016

2016

2015

2015

2

Amount

Percent

Amount

Percent

3

Sales

$810,000.00

$500,000.00

4

Cost of goods sold

283,500.00

185,000.00

5

Gross profit

$526,500.00

$315,000.00

6

Selling expenses

$162,000.00

$90,000.00

7

Administrative expenses

56,700.00

45,000.00

8

Total operating expenses

$218,700.00

$135,000.00

9

Income from operations

$307,800.00

$180,000.00

10

Other income

72,900.00

45,000.00

11

Income before income tax

$380,700.00

$225,000.00

12

Income tax expense

210,600.00

130,000.00

13

Net income

$170,100.00

$95,000.00

Solution

Indigo Company

Comparative Income Statement

For the Years Ended December 31, 2016 and 2015

1

2016

2016

2015

2015

2

Amount

Percent

Amount

Percent

3

Sales

$810,000.00

$500,000.00

4

Cost of goods sold

283,500.00

185,000.00

5

Gross profit

$526,500.00

$315,000.00

6

Selling expenses

$162,000.00

$90,000.00

7

Administrative expenses

56,700.00

45,000.00

8

Total operating expenses

$218,700.00

$135,000.00

9

Income from operations

$307,800.00

$180,000.00

10

Other income

72,900.00

45,000.00

11

Income before income tax

$380,700.00

$225,000.00

12

Income tax expense

210,600.00

130,000.00

13

Net income

$170,100.00

$95,000.00

Points:

Feedback

Check My Work

none

X

Final Question

2. Comment on the significant relationships revealed by the vertical analysis prepared in (1).

The vertical analysis indicates that the costs other than selling expenses (cost of goods sold and administrative expenses) selector 1

deteriorated

improved

as a percentage of sales. As a result, net income as a percentage of sales selector 2

increased

decreased

by 2 percentage points. The sales promotion campaign appears to have been selector 3

unsuccessful

successful

. While selling expenses as a percent of sales selector 4

increased

decreased

slightly, the selector 5

increased

decreased

cost was more than made up for by selector 6

increased

decreased

sales.

Points:

Feedback

Check My Work

Explanation

none

Select Panels for Tile View

The tile view can hold up to three panels at once. Choose which panels you want to see.

One or more positions have the same panel selected. Check your selections and try again.

Not loaded

Don't worry, all of your changes will be saved.

CancelOK

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Auditing Fundamentals

Authors: Marlene Davies, John Aston

1st Edition

0273711733, 978-0273711735

More Books

Students also viewed these Accounting questions