For 20Y6, Fishing Experiences Inc. initiated a sales promotion campaign that included the expenditure of an additional $20,000 for advertising. At the end of the year, Colt Schultz, the president, is presented with the following condensed comparative income statement:

FISHING EXPERIENCES INC. Comparative Income Statement For the Years Ended December 31, 20Y6 and 20Y5
	20Y6		20Y5
Sales	$729,000		$627,000
Cost of goods sold	(328,050)		(313,500)
Gross profit	$ 400,950		$ 313,500
Selling expenses	(160,380)		(119,130)
Administrative expenses	(72,900)		(81,510)
Total operating expenses	$ (233,280)		$ (200,640)
Operating income	$ 167,670		$ 112,860
Other revenue	36,450		18,810
Income before income tax	$ 204,120		$ 131,670
Income tax expense	(80,190)		(50,160)
Net income	$ 123,930		$ 81,510

Instructions:

Question Content Area

1. Prepare a comparative income statement for the two-year period, presenting a vertical analysis of each item in relationship to sales for each of the years.

	20Y6 Amount	20Y6 Percent	20Y5 Amount	20Y5 Percent
Sales	$729,000	fill in the blank %	$627,000	fill in the blank %
Cost of goods sold	(328,050)	fill in the blank %	(313,500)	fill in the blank %
Gross profit	$400,950	fill in the blank %	$313,500	fill in the blank %
Selling expenses	$(160,380)	fill in the blank %	$(119,130)	fill in the blank %
Administrative expenses	(72,900)	fill in the blank %	(81,510)	fill in the blank %
Total operating expenses	$(233,280)	fill in the blank %	$(200,640)	fill in the blank %
Operating income	$167,670	fill in the blank %	$112,860	fill in the blank %
Other revenue	36,450	fill in the blank %	18,810	fill in the blank %
Income before income tax	$204,120	fill in the blank %	$131,670	fill in the blank %
Income tax expense	(80,190)	fill in the blank %	(50,160)	fill in the blank %
Net income	$123,930	fill in the blank %	$81,510	fill in the blank %

Question Content Area

2. Based on the vertical analysis prepared in 1 which of the following statements is correct? a. Costs other than selling expenses (cost of goods sold and administrative expenses) improved as a percentage of sales. b. Net income as a percentage of sales increased. c. The sales promotion campaign appears to have been successful. d. Selling expenses as a percent of sales increased slightly

a and ba and ca and dAll of the above