Vertical Analysis of Income Statement

For 20Y2, Tri-Comic Company initiated a sales promotion campaign that included the expenditure of an additional $23,000 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	$812,000		$698,000
Cost of goods sold	365,400		349,000
Gross profit	$446,600		$349,000
Selling expenses	$162,400		$132,620
Administrative expenses	89,320		90,740
Total operating expenses	$251,720		$223,360
Income from operations	$194,880		$125,640
Other income	24,360		20,940
Income before income tax	$219,240		$146,580
Income tax expense	89,320		55,840
Net income	$129,920		$90,740

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.

Tri-Comic Company
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
	20Y2 Amount	20Y2 Percent	20Y1 Amount	20Y1 Percent
Sales	$812,000	%	$698,000	%
Cost of goods sold	365,400	%	349,000	%
Gross profit	$446,600	%	$349,000	%
Selling expenses	162,400	%	132,620	%
Administrative expenses	89,320	%	90,740	%
Total operating expenses	$251,720	%	$223,360	%
Income from operations	$194,880	%	$125,640	%
Other income	24,360	%	20,940	%
Income before income tax	$219,240	%	$146,580	%
Income tax expense	89,320	%	55,840	%
Net income	$129,920	%	$90,740	%

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