(Using common size and trend statements to evaluate performance, LO 2) The income statements of Kronau Corp. (Kronau) for the years ended March 31, 2003 through 2005 are shown below:

Required:

a. Prepare common size and trend financial statements for Kronau.

b. Use the information from part

(a) to evaluate the performance of Kronau. Explain fully. Your evaluation should include a comparison of Kronau’s performance from year to year.

c. How does the unusual income affect your ability to evaluate the performance of Kronau and to interpret your common size and trend financial statements?

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Kronau Corp. Income Statements For the Years Ended March 31 2005 2004 2003 Sales Cost of sales $5,750,000 $5,225,000 $4,850,000 3,150,000 2,750,000 2,561,000 Gross margin 2,600,000 2,475,000 2,289,000 Selling, general, and administrative expenses 1,350,000 1,150,000 1,111,000 Amortization expense 258,000 210,000 190,000 Interest expense 300,000 275,000 260,000 Unusual income 500,000 Income before income taxes 1,192,000 840,000 728,000 Income tax expense 200,000 160,000 150,000 Net income $ 992,000 $ 680,000 $ 578,000