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	$518,000		$471,000
Cost of goods sold	290,080		240,210
Selling expenses	93,240		94,200
Administrative expenses	98,420		80,070
Income tax expense	15,540		23,550

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	$518,000	%	$471,000	%
Cost of goods sold	290,080	%	240,210	%
Gross profit	$	%	$	%
Selling expenses	93,240	%	94,200	%
Administrative expenses	98,420	%	80,070	%
Total operating expenses	$	%	$	%
Income from operations		%		%
Income tax expense	15,540	%	23,550	%
Net income	$	%	$	%

b. The vertical analysis indicates that the cost of goods sold as a percent of sales increased by 5 percentage points, while selling expenses increased by 2 percentage points, and administrative expenses by 2 percentage points. Thus, net income as a percent of sales by 3 percentage points.