Vertical Analysis for Income Statement

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	$723,000		$622,000
Cost of goods sold	(375,960)		(323,440)
Gross profit	$ 347,040		$ 298,560
Selling expenses	(159,060)		(118,180)
Administrative expenses	(72,300)		(74,640)
Total operating expenses	$ (231,360)		$ (192,820)
Operating income	$ 115,680		$ 105,740
Other revenue	43,380		24,880
Income before income tax	$ 159,060		$ 130,620
Income tax expense	(65,070)		(49,760)
Net income	$ 93,990		$ 80,860

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	$723,000	fill in the blank 834021fb202bfce_1%	$622,000	fill in the blank 834021fb202bfce_2%
Cost of goods sold	(375,960)	fill in the blank 834021fb202bfce_3%	(323,440)	fill in the blank 834021fb202bfce_4%
Gross profit	$347,040	fill in the blank 834021fb202bfce_5%	$298,560	fill in the blank 834021fb202bfce_6%
Selling expenses	$(159,060)	fill in the blank 834021fb202bfce_7%	$(118,180)	fill in the blank 834021fb202bfce_8%
Administrative expenses	(72,300)	fill in the blank 834021fb202bfce_9%	(74,640)	fill in the blank 834021fb202bfce_10%
Total operating expenses	$(231,360)	fill in the blank 834021fb202bfce_11%	$(192,820)	fill in the blank 834021fb202bfce_12%
Operating income	$115,680	fill in the blank 834021fb202bfce_13%	$105,740	fill in the blank 834021fb202bfce_14%
Other revenue	43,380	fill in the blank 834021fb202bfce_15%	24,880	fill in the blank 834021fb202bfce_16%
Income before income tax	$159,060	fill in the blank 834021fb202bfce_17%	$130,620	fill in the blank 834021fb202bfce_18%
Income tax expense	(65,070)	fill in the blank 834021fb202bfce_19%	(49,760)	fill in the blank 834021fb202bfce_20%
Net income	$93,990	fill in the blank 834021fb202bfce_21%	$80,860	fill in the blank 834021fb202bfce_22%

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