1. 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	$580,000		$522,000
   Cost of goods sold	324,800		261,000
   Selling expenses	104,400		104,400
   Administrative expenses	110,200		93,960
   Income tax expense	17,400		26,100

   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	$580,000	%	$522,000	%
   Cost of goods sold	324,800	%	261,000	%
   Gross profit Income from operations Net income Total operating expenses	$	%	$	%
   Selling expenses	104,400	%	104,400	%
   Administrative expenses	110,200	%	93,960	%
   Gross profit Income from operations Net income Total operating expenses	$	%	$	%
   Gross profit Income from operations Net income Total operating expenses		%		%
   Income tax expense	17,400	%	26,100	%
   Gross profit Income from operations Net income Total operating expenses	$	%	$	%

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   b. The vertical analysis indicates that the cost of goods sold as a percent of sales

   • increased
   • decreased
   by 6 percentage points, while selling expenses
   • increased
   • decreased
   by 2 percentage points, and administrative expenses
   • increased
   • decreased
   by 1 percentage points. Thus, net income as a percent of sales
   • increased
   • decreased
   by 3 percentage points.