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Vertical Analysis of Income Statement

Revenue and expense data for Innovation Quarter Inc. for two recent years are as follows:

	Current Year	Previous Year
Sales	$466,000		$396,000
Cost of merchandise sold	270,280		205,920
Selling expenses	79,220		75,240
Administrative expenses	83,880		67,320
Income tax expense	13,980		19,800

Question Content Area

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

	Current year Amount	Current year Percent	Previous year Amount	Previous year Percent
Sales	$466,000	fill in the blank ed096603efc800a_1%	$396,000	fill in the blank ed096603efc800a_2%
Cost of merchandise sold	270,280	fill in the blank ed096603efc800a_3%	205,920	fill in the blank ed096603efc800a_4%
Gross profitIncome from operationsNet incomeTotal operating expenses	$- Select -	- Select -%	$- Select -	- Select -%
Selling expenses	79,220	fill in the blank ed096603efc800a_10%	75,240	fill in the blank ed096603efc800a_11%
Administrative expenses	83,880	fill in the blank ed096603efc800a_12%	67,320	fill in the blank ed096603efc800a_13%
Gross profitIncome from operationsNet incomeTotal operating expenses	$- Select -	- Select -%	$- Select -	- Select -%
Gross profitIncome from operationsNet incomeTotal operating expenses	- Select -	- Select -%	- Select -	- Select -%
Income tax expense	13,980	fill in the blank ed096603efc800a_24%	19,800	fill in the blank ed096603efc800a_25%
Gross profitIncome from operationsNet incomeTotal operating expenses	$- Select -	- Select -%	$- Select -	- Select -%

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b. The vertical analysis indicates that the cost of merchandise sold as a percent of sales

increased or decreased

by 6 percentage points, while selling expenses

increased or decreased

by 2 percentage points, and administrative expenses

increased or decreased

by 1 percentage points. Thus, net income as a percent of sales

increaseddecreased

by 3 percentage points.