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

Question Content Area

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 ca78620a0025f9e_1%	$3,600,000	fill in the blank ca78620a0025f9e_2%
Cost of goods sold	(2,280,000)	fill in the blank ca78620a0025f9e_3%	(1,872,000)	fill in the blank ca78620a0025f9e_4%
Gross profitOperating incomeNet incomeTotal operating expenses	$- Select -	- Select -%	$- Select -	- Select -%
Selling expenses	$(600,000)	fill in the blank ca78620a0025f9e_10%	$(648,000)	fill in the blank ca78620a0025f9e_11%
Administrative expenses	(520,000)	fill in the blank ca78620a0025f9e_12%	(360,000)	fill in the blank ca78620a0025f9e_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 ca78620a0025f9e_24%	(216,000)	fill in the blank ca78620a0025f9e_25%
Gross profitOperating incomeNet incomeTotal operating expenses	$- Select -	- Select -%	$- Select -	- Select -%

Question Content Area

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.