Vertical Analysis of Income Statement

Revenue and expense data for Innovation Quarter Inc. for two recent years are as follows:

	Current Year		Previous Year
Sales	$548,000		$460,000
Cost of merchandise sold	339,760		262,200
Selling expenses	82,200		78,200
Administrative expenses	93,160		73,600
Income tax expense	10,960		18,400

a. Prepare an income statement in comparative form, stating each item for both years as a percent of sales. If required, round percentages to one decimal place. Enter all amounts as positive numbers.

Innovation Quarter Inc.
Comparative Income Statement
For the Years Ended December 31
	Current year Amount	Current year Percent	Previous year Amount	Previous year Percent
Sales	$548,000		$460,000	%
Cost of merchandise sold	339,760		262,200	%
	$		$	%
Selling expenses	82,200		78,200	%
Administrative expenses	93,160		73,600	%
	$		$	%
	$		$	%
Income tax expense	10,960		18,400	%
	$		$	%

b. The vertical analysis indicates that the cost of merchandise sold as a percent of sales by 5 percentage points, while selling expenses by 2 percentage points, and administrative expenses by 1 percentage points. Thus, net income as a percent of sales by 2 percentage points.