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	$809,000		$696,000
Cost of merchandise sold	380,230		361,920
Gross profit	$428,770		$334,080
Selling expenses	$161,800		$132,240
Administrative expenses	80,900		83,520
Total operating expenses	$242,700		$215,760
Income from operations	$186,070		$118,320
Other revenue	40,450		41,760
Income before income tax expense	$226,520		$160,080
Income tax expense	88,990		62,640
Net income	$137,530		$97,440

Required:

Question Content Area

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	$809,000	fill in the blank 8ecf8207afbdf92_1%	$696,000	fill in the blank 8ecf8207afbdf92_2%
Cost of merchandise sold	380,230	fill in the blank 8ecf8207afbdf92_3%	361,920	fill in the blank 8ecf8207afbdf92_4%
Gross profit	$428,770	fill in the blank 8ecf8207afbdf92_5%	$334,080	fill in the blank 8ecf8207afbdf92_6%
Selling expenses	$161,800	fill in the blank 8ecf8207afbdf92_7%	$132,240	fill in the blank 8ecf8207afbdf92_8%
Administrative expenses	80,900	fill in the blank 8ecf8207afbdf92_9%	83,520	fill in the blank 8ecf8207afbdf92_10%
Total operating expenses	$242,700	fill in the blank 8ecf8207afbdf92_11%	$215,760	fill in the blank 8ecf8207afbdf92_12%
Income from operations	$186,070	fill in the blank 8ecf8207afbdf92_13%	$118,320	fill in the blank 8ecf8207afbdf92_14%
Other revenue	40,450	fill in the blank 8ecf8207afbdf92_15%	41,760	fill in the blank 8ecf8207afbdf92_16%
Income before income tax expense	$226,520	fill in the blank 8ecf8207afbdf92_17%	$160,080	fill in the blank 8ecf8207afbdf92_18%
Income tax expense	88,990	fill in the blank 8ecf8207afbdf92_19%	62,640	fill in the blank 8ecf8207afbdf92_20%
Net income	$137,530	fill in the blank 8ecf8207afbdf92_21%	$97,440	fill in the blank 8ecf8207afbdf92_22%

Question Content Area

2. The vertical analysis indicates that the costs other than selling expenses (cost of merchandise sold and administrative expenses)

improveddeteriorated

as a percentage of sales. As a result, net income as a percentage of sales

increaseddecreased

. The sales promotion campaign appears to have been

successfulunsuccessful

. While selling expenses as a percent of sales

increaseddecreased

slightly, the

increaseddecreased

cost was more than made up for by

increaseddecreased

sales.