Vertical Analysis of Income Statement

For 20Y2, Tri-Comic Company initiated a sales promotion campaign that included the expenditure of an additional $13,000 for advertising. At the end of the year, Lumi Neer, the president, is presented with the following condensed comparative income statement:

Tri-Comic Company Comparative Income Statement For the Years Ended December 31, 20Y2 and 20Y1
	20Y2		20Y1
Sales	$452,000		$389,000
Cost of goods sold	230,520		221,730
Gross profit	$221,480		$167,270
Selling expenses	$94,920		$77,800
Administrative expenses	49,720		50,570
Total operating expenses	$144,640		$128,370
Income from operations	$76,840		$38,900
Other revenue	13,560		19,450
Income before income tax	$90,400		$58,350
Income tax expense	36,160		23,340
Net income	$54,240		$35,010

Required:

1. Prepare a comparative income statement for the two-year period, presenting an analysis of each item in relationship to sales for each of the years. Enter percentages as whole numbers. Enter all amounts as positive numbers.

2. The vertical analysis indicates that the costs other than selling expenses (cost of goods sold and administrative expenses) ___________(Improved/deteriorated) as a percentage of sales. As a result, net income as a percentage of sales ___________(increased/decreased). The sales promotion campaign appears to have been __________(successful/unsuccessful). While selling expenses as a percent of sales ___________(increased/decreased) slightly, the ____________(increased/decreased cost was more than made up for by ___________(increased/decreased) sales.

Tri-Comic Company Comparative Income Statement For the Years Ended December 31, 20Y2 and 20Y1 20Y2 Amount 20Y2 Percent 20Y1 Amount 20Y1 Percent Sales Cost of goods sold Gross proft Selling expenses Administrative expenses Total operating expenses Income from operations Other revenue Income before income tax Income tax expense Net income 389,000 221,730 $167,270 $77,800 50,570 $128,370 $38,900 19,450 $58,350 23,340 $35,010 $452,000 230,520 $221,480 $94,920 49,720 $144,640 $76,840 13,560 $90,400 36,160 $54,240