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	$4,000,000		$3,600,000
   Cost of goods sold	2,280,000		1,872,000
   Selling expenses	600,000		648,000
   Administrative expenses	520,000		360,000
   Income tax expense	240,000		216,000

   a. Prepare an income statement in comparative form, stating each item for both years as a percent of sales. Round to the nearest whole percentage.

   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	$4,000,000	fill in the blank cb7addf2c065fb2_1%	$3,600,000	fill in the blank cb7addf2c065fb2_2%
   Cost of goods sold	(2,280,000)	fill in the blank cb7addf2c065fb2_3%	(1,872,000)	fill in the blank cb7addf2c065fb2_4%
   Gross profitOperating incomeNet incomeTotal operating expenses	$- Select -	- Select -%	$- Select -	- Select -%
   Selling expenses	$(600,000)	fill in the blank cb7addf2c065fb2_10%	$(648,000)	fill in the blank cb7addf2c065fb2_11%
   Administrative expenses	(520,000)	fill in the blank cb7addf2c065fb2_12%	(360,000)	fill in the blank cb7addf2c065fb2_13%
   Gross profitOperating incomeNet incomeTotal operating expenses	$- Select -	- Select -%	$- Select -	- Select -%
   Gross profitOperating incomeNet incomeTotal operating expenses	$- Select -	- Select -%	$- Select -	- Select -%
   Income tax expense	(240,000)	fill in the blank cb7addf2c065fb2_24%	(216,000)	fill in the blank cb7addf2c065fb2_25%
   Gross profitOperating incomeNet incomeTotal operating expenses	$- Select -	- Select -%	$- Select -	- Select -%

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

   increaseddecreased

   by 5 percentage points, while selling expenses

   increaseddecreased

   by 3 percentage points, and administrative expenses

   increaseddecreased

   by 3 percentage points. Thus, net income as a percent of sales

   increaseddecreased

   by 5 percentage points.