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

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

	Year 1		Year 2		Year 3
Net sales	$1,000,000		$1,100,000		$1,250,000
Less: Cost of goods sold	(700,000)		(750,000)		(810,000)
Gross margin	$ 300,000		$ 350,000		$ 440,000
Less:
Operating expenses	(180,000)		(240,000)		(310,000)
Income taxes	(60,000)		(44,000)		(52,000)
Net income	$ 60,000		$ 66,000		$ 78,000

Required:

Hide

Prepare common-size income statements by using net sales as the base. (Note: Round answers to the nearest whole percentage.)

Allyson Company

Income Statements

Years of Operation

Year 1 Dollars

Year 1 Percent

Year 2 Dollars

Year 2 Percent

Year 3 Dollars

Year 3 Percent

Net sales

$1,000,000

% Correct 12

$1,100,000

% Correct 14

$1,250,000

% Correct 16

Less: Cost of goods sold

(700,000)

Correct 19

(750,000)

Correct 21

(810,000)

Correct 23

Gross margin

$ 300,000

% Correct 26

$ 350,000

% Correct 28

$ 440,000

% Correct 30

Less:

Operating expenses

(180,000)

Correct 34

(240,000)

Correct 36

(310,000)

Correct 38

Income taxes

(60,000)

Correct 41

(44,000)

Correct 43

(52,000)

Correct 45

Net income

$ 60,000

% Correct 48

$ 66,000

% Correct 50

$ 78,000

% Correct 52