Preparing Income Statements by Using Net Sales as the Base: Vertical Analysis

Scherer Company provided the following income statements for its first 3 years of operation:

Scherer Company Income Statements Years of Operation
	Year 1	Year 2	Year 3
Net sales	$950,000	$1,045,000	$1,235,000
Less: Cost of goods sold	(292,000)	(316,000)	(365,000)
Gross margin	$658,000	$729,000	$870,000
Less:
Operating expenses	(414,000)	(485,000)	(582,500)
Income taxes	(108,600)	(124,200)	(138,600)
Net income	$135,400	$119,800	$148,900

Required:

Prepare common-size income statements by using net sales as the base. (Note: Enter all amounts as positive numbers, except for a net loss. Enter net loss as a negative number, if applicable. Round answers to the nearest whole percentage. Percentages may not calculate down.)

	Year 1	Year 1	Year 2	Year 2	Year 3	Year 3
	Dollars	Percentage	Dollars	Percentage	Dollars	Percentage
Net sales	$950,000	fill in the blank 1%	1,045,000	fill in the blank 2%	$1,235,000	fill in the blank 3%
Less: Cost of goods sold	(292,000)	fill in the blank 4	(316,000)	fill in the blank 5	(365,000)	fill in the blank 6
Gross margin	$658,000	fill in the blank 7	$729,000	fill in the blank 8	$870,000	fill in the blank 9
Less:
Operating expenses	(414,000)	fill in the blank 10	(485,000)	fill in the blank 11	(582,500)	fill in the blank 12
Income taxes	(108,600)	fill in the blank 13	(124,200)	fill in the blank 14	(138,600)	fill in the blank 15
Net income	$135,400	fill in the blank 16%	$119,800	fill in the blank 17%	$148,900	fill in the blank 18%

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Set up all three years side by side in income statement form. Each line amount is a percentage of the same year's net sales.