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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

  1. 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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