Question
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
Vertical Analysis of Income Statement
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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 $579,000 $498,000 Cost of goods sold 306,870 283,860 Gross profit $272,130 $214,140 Selling expenses $110,010 $89,640 Administrative expenses 57,900 59,760 Total operating expenses $167,910 $149,400 Income from operations $104,220 $64,740 Other revenue 17,370 14,940 Income before income tax $121,590 $79,680 Income tax expense 46,320 29,880 Net income $75,270 $49,800 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 $579,000 % $498,000 % Cost of goods sold 306,870 % 283,860 % Gross profit $272,130 % $214,140 % Selling expenses $110,010 % $89,640 % Administrative expenses 57,900 % 59,760 % Total operating expenses $167,910 % $149,400 % Income from operations $104,220 % $64,740 % Other revenue 17,370 % 14,940 % Income before income tax $121,590 % $79,680 % Income tax expense 46,320 % 29,880 % Net income $75,270 % $49,800 % 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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