The following percentages apply to Thornton Company for Year 3 and Year 4.

Required

Assuming that sales were $800,000 in Year 3 and $960,000 in Year 4, prepare income statements for the two years.

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Year 4 Year 3 Sales 100.0% 100.0% Cost of goods sold 61.0 64.0 Gross margin 39.0 36.0 20.5 Selling and administrative expense Interest expense 26.5 2.5 2.0 Total expenses 29.0 22.5 Income before taxes 10.0 13.5 Income tax expense 5.5 7.0 Net income 4.5% 6.5%