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	$504,000		$449,000
Cost of merchandise sold	297,360		228,990
Selling expenses	80,640		89,800
Administrative expenses	90,720		76,330
Income tax expense	15,120		22,450

Question Content Area

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	$504,000	fill in the blank 8876a101a00b038_1%	$449,000	fill in the blank 8876a101a00b038_2%
Cost of merchandise sold	297,360	fill in the blank 8876a101a00b038_3%	228,990	fill in the blank 8876a101a00b038_4%
Gross profitIncome from operationsNet incomeTotal operating expenses	$- Select -	- Select -%	$- Select -	- Select -%
Selling expenses	80,640	fill in the blank 8876a101a00b038_10%	89,800	fill in the blank 8876a101a00b038_11%
Administrative expenses	90,720	fill in the blank 8876a101a00b038_12%	76,330	fill in the blank 8876a101a00b038_13%
Gross profitIncome from operationsNet incomeTotal operating expenses	$- Select -	- Select -%	$- Select -	- Select -%
Gross profitIncome from operationsNet incomeTotal operating expenses	- Select -	- Select -%	- Select -	- Select -%
Income tax expense	15,120	fill in the blank 8876a101a00b038_24%	22,450	fill in the blank 8876a101a00b038_25%
Gross profitIncome from operationsNet incomeTotal operating expenses	$- Select -	- Select -%	$- Select -	- Select -%

Question Content Area

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

increaseddecreased

by 8 percentage points, while selling expenses

increaseddecreased

by 4 percentage points, and administrative expenses

increaseddecreased

by 1 percentage points. Thus, net income as a percent of sales

increaseddecreased

by 3 percentage points.