Question
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,
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:
Indigo Company |
Comparative Income Statement |
For the Years Ended December 31, 2016 and 2015 |
1 |
| 2016 | 2015 |
2 | Sales | $820,000.00 | $600,000.00 |
3 | Cost of goods sold | 311,600.00 | 240,000.00 |
4 | Gross profit | $508,400.00 | $360,000.00 |
5 | Selling expenses | $164,000.00 | $108,000.00 |
6 | Administrative expenses | 57,400.00 | 54,000.00 |
7 | Total operating expenses | $221,400.00 | $162,000.00 |
8 | Income from operations | $287,000.00 | $198,000.00 |
9 | Other income | 65,600.00 | 48,000.00 |
10 | Income before income tax | $352,600.00 | $246,000.00 |
11 | Income tax expense | 246,000.00 | 180,000.00 |
12 | Net income | $106,600.00 | $66,000.00 |
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).
|
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 | $820,000.00 | $600,000.00 | ||
4 | Cost of goods sold | 311,600.00 | 240,000.00 | ||
5 | Gross profit | $508,400.00 | $360,000.00 | ||
6 | Selling expenses | $164,000.00 | $108,000.00 | ||
7 | Administrative expenses | 57,400.00 | 54,000.00 | ||
8 | Total operating expenses | $221,400.00 | $162,000.00 | ||
9 | Income from operations | $287,000.00 | $198,000.00 | ||
10 | Other income | 65,600.00 | 48,000.00 | ||
11 | Income before income tax | $352,600.00 | $246,000.00 | ||
12 | Income tax expense | 246,000.00 | ? | 180,000.00 | ? |
13 | Net income | $106,600.00 | ? | $66,000.00 | ? |
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