Revenue and expense data for Bluestem Company are as follows: Year 2 Year 1 admi
ID: 2394511 • Letter: R
Question
Revenue and expense data for Bluestem Company are as follows:
Year 2 Year 1
administrative expenses 37,720 20,300
COGS 360,000 319,900
Income tax 41,000 32,200
Sales 820,000 700,000
Selling expense 154,160 109,900
1) Required: (a) Prepare a comparative income statement, with vertical analysis, stating each item for both years as a percent of sales. Round your percentages to one decimal place. Enter all amounts as positive numbers. Refer to the Accounts and Amount Descriptions for correct wording of text entries. (b) Comment upon significant changes disclosed by the comparative income statement.
2) Comment upon significant changes disclosed by the comparative income statement.
There was an (increase/decrease) the cost of goods sold and a 1.7% (increase/decrease) in administrative expenses. However, the more significant of 3.1% in selling expenses offset the 1.8% (increase/decrease) in the cost of goods sold and contributed greatly to the 3.4% (increase/decrease) in net income.
Explanation / Answer
Requirement (1) - Comparative Income statement, with vertical analysis
BLUESTEM COMPANY
Comparative Income Statements
YEAR 2
YEAR 1
Amount
Percent
Amount
Percent
Sales Revenue
820,000
100%
700,000
100%
Less : Cost of goods Sold
360,000
43.9%
319,900
45.7%
Gross Profit
460,000
56.1%
380,100
54.3%
Less : Operating Expenses
Selling Expenses
154,160
18.8%
109,900
15.7%
Administrative Expenses
37,720
4.6%
20,300
2.9%
Total
191,880
23.4%
130,200
18.6%
Income Before Income Tax
268,120
32.7%
249,900
35.7%
Less : Income Tax
41,000
5%
32,200
4.6%
Net Income
227,120
27.7%
217,700
31.1%
Requirement (2) - Comment on significant changes disclosed by the comparative income statement
There was an “decrease” in the cost of goods sold and a 1.7% “increase” in administrative expenses. However, the more significant of 3.1% in selling expenses offset the 1.8% “decrease” in the cost of goods sold and contributed greatly to the 3.4% “decrease” in net income.
BLUESTEM COMPANY
Comparative Income Statements
YEAR 2
YEAR 1
Amount
Percent
Amount
Percent
Sales Revenue
820,000
100%
700,000
100%
Less : Cost of goods Sold
360,000
43.9%
319,900
45.7%
Gross Profit
460,000
56.1%
380,100
54.3%
Less : Operating Expenses
Selling Expenses
154,160
18.8%
109,900
15.7%
Administrative Expenses
37,720
4.6%
20,300
2.9%
Total
191,880
23.4%
130,200
18.6%
Income Before Income Tax
268,120
32.7%
249,900
35.7%
Less : Income Tax
41,000
5%
32,200
4.6%
Net Income
227,120
27.7%
217,700
31.1%
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