Vertical Analysis for Income Statement

For 20Y6, Fishing Experiences Inc. initiated a sales promotion campaign that included the expenditure of an additional $19,000 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	$695,000		$598,000
Cost of goods sold	(326,650)		(328,900)
Gross profit	$ 368,350		$ 269,100
Selling expenses	(152,900)		(119,600)
Administrative expenses	(62,550)		(77,740)
Total operating expenses	$ (215,450)		$ (197,340)
Operating income	$ 152,900		$ 71,760
Other revenue	41,700		23,920
Income before income tax	$ 194,600		$ 95,680
Income tax expense	(76,450)		(35,880)
Net income	$ 118,150		$ 59,800

Instructions:

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.

Fishing Experiences Inc.
Comparative Income Statement
For the Years Ended December 31, 20Y6 and 20Y5
	20Y6 Amount	20Y6 Percent	20Y5 Amount	20Y5 Percent
Sales	$695,000	%	$598,000	%
Cost of goods sold	(326,650)	%	(328,900)	%
Gross profit	$368,350	%	$269,100	%
Selling expenses	$(152,900)	%	$(119,600)	%
Administrative expenses	(62,550)	%	(77,740)	%
Total operating expenses	$(215,450)	%	$(197,340)	%
Operating income	$152,900	%	$71,760	%
Other revenue	41,700	%	23,920	%
Income before income tax	$194,600	%	$95,680	%
Income tax expense	(76,450)	%	(35,880)	%
Net income	$118,150	%	$59,800	%

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