Year 2 Year 1 Sales $ 519,000 $ 419,000 Cost of goods sold 330,000 268,000 Gross
ID: 2398666 • Letter: Y
Question
Year 2
Year 1
Sales
$
519,000
$
419,000
Cost of goods sold
330,000
268,000
Gross profit
$
189,000
$
151,000
Operating expenses
130,000
116,000
Net income
$
59,000
$
35,000
a. Prepare common size income statements for Price Company, a sole proprietorship, for the two years shown as above by converting the dollar amounts into percentages. For each year, sales will appear as 100 percent and other items will be expressed as a percentage of sales. (Income taxes are not involved as the business is not incorporated.)
b. State whether the changes from year 1 to year 2 are favorable or unfavorable.
Year 2
Year 1
Sales
$
519,000
$
419,000
Cost of goods sold
330,000
268,000
Gross profit
$
189,000
$
151,000
Operating expenses
130,000
116,000
Net income
$
59,000
$
35,000
Explanation / Answer
a) Prepare common size income statement :
b) Changes from year 1 to year 2 is favorable because percentage of net income is higher in year 2
Year 2 amount Year 2 percentage Year 1 AMount Year 1 percentage Sales 519000 100% 419000 100% Cost of goods sold 330000 63.6% 268000 64.0% Gross profit 189000 36.4% 151000 36.0% Operating expenses 130000 25.0% 116000 27.7% Net income 59000 11.4% 35000 8.4%Related Questions
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