Vertical Analysis of Income Statement

For 20Y2, Tri-Comic Company initiated a sales promotion campaign that included the expenditure of an additional $16,000 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	$554,000		$476,000
Cost of merchandise sold	265,920		247,520
Gross profit	$288,080		$228,480
Selling expenses	$110,800		$90,440
Administrative expenses	60,940		61,880
Total operating expenses	$171,740		$152,320
Income from operations	$116,340		$76,160
Other revenue	33,240		23,800
Income before income tax expense	$149,580		$99,960
Income tax expense	60,940		38,080
Net income	$88,640		$61,880

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	$554,000	fill in the blank 8b0ba5f8703f041_1%	$476,000	fill in the blank 8b0ba5f8703f041_2%
Cost of merchandise sold	265,920	fill in the blank 8b0ba5f8703f041_3%	247,520	fill in the blank 8b0ba5f8703f041_4%
Gross profit	$288,080	fill in the blank 8b0ba5f8703f041_5%	$228,480	fill in the blank 8b0ba5f8703f041_6%
Selling expenses	$110,800	fill in the blank 8b0ba5f8703f041_7%	$90,440	fill in the blank 8b0ba5f8703f041_8%
Administrative expenses	60,940	fill in the blank 8b0ba5f8703f041_9%	61,880	fill in the blank 8b0ba5f8703f041_10%
Total operating expenses	$171,740	fill in the blank 8b0ba5f8703f041_11%	$152,320	fill in the blank 8b0ba5f8703f041_12%
Income from operations	$116,340	fill in the blank 8b0ba5f8703f041_13%	$76,160	fill in the blank 8b0ba5f8703f041_14%
Other revenue	33,240	fill in the blank 8b0ba5f8703f041_15%	23,800	fill in the blank 8b0ba5f8703f041_16%
Income before income tax expense	$149,580	fill in the blank 8b0ba5f8703f041_17%	$99,960	fill in the blank 8b0ba5f8703f041_18%
Income tax expense	60,940	fill in the blank 8b0ba5f8703f041_19%	38,080	fill in the blank 8b0ba5f8703f041_20%
Net income	$88,640	fill in the blank 8b0ba5f8703f041_21%	$61,880	fill in the blank 8b0ba5f8703f041_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.

.