Question
Vertical Analysis of Income Statement For 20Y2, Tri-Comic Company initiated a sales promotion campaign that included the expenditure of an additional $21,000 for advertising. At
Vertical Analysis of Income Statement
For 20Y2, Tri-Comic Company initiated a sales promotion campaign that included the expenditure of an additional $21,000 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 | $750,000 | $645,000 | |
Cost of goods sold | 397,500 | 380,550 | |
Gross profit | $352,500 | $264,450 | |
Selling expenses | $142,500 | $116,100 | |
Administrative expenses | 75,000 | 77,400 | |
Total operating expenses | $217,500 | $193,500 | |
Income from operations | $135,000 | $70,950 | |
Other income | 22,500 | 19,350 | |
Income before income tax | $157,500 | $90,300 | |
Income tax expense | 60,000 | 38,700 | |
Net income | $97,500 | $51,600 |
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 | $750,000 | % | $645,000 | % |
Cost of goods sold | 397,500 | % | 380,550 | % |
Gross profit | $352,500 | % | $264,450 | % |
Selling expenses | 142,500 | % | 116,100 | % |
Administrative expenses | 75,000 | % | 77,400 | % |
Total operating expenses | $217,500 | % | $193,500 | % |
Income from operations | $135,000 | % | $70,950 | % |
Other income | 22,500 | % | 19,350 | % |
Income before income tax | $157,500 | % | $90,300 | % |
Income tax expense | 60,000 | % | 38,700 | % |
Net income | $97,500 | % | $51,600 | % |
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.
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