Presented below is an income statement, with the past two years\' results presen
ID: 2419089 • Letter: P
Question
Presented below is an income statement, with the past two years' results presented:
2016
2015
Revenue
$4,200,000
$4,000,000
Cost of goods sold
$2,910,000
$2,800,000
Gross profit
$1,290,000
$1,200,000
Selling cost
$280,000
$250,000
Administrative cost
$140,000
$120,000
Operating profit
$870,000
$830,000
Interest expense
$78,000
$80,000
Income before taxes
$792,000
$750,000
Income taxes
$277,200
$262,500
Net income
$514,800
$487,500
Prepare a vertical analysis for the first 3 items only for both 2016 and 2015. Display percentages to 2 decimal places (.654 = 65%).
2016
2015
Revenue
$4,200,000
$4,000,000
Cost of goods sold
$2,910,000
$2,800,000
Gross profit
$1,290,000
$1,200,000
Selling cost
$280,000
$250,000
Administrative cost
$140,000
$120,000
Operating profit
$870,000
$830,000
Interest expense
$78,000
$80,000
Income before taxes
$792,000
$750,000
Income taxes
$277,200
$262,500
Net income
$514,800
$487,500
Explanation / Answer
1. To conduct a vertical analysis of income statement, sales figure is generally used as the base and all other components of income statement like cost of sales, gross profit, operating expenses, income tax, and net income etc. are shown as a percentage of sales.
2. The formula is Percentage of base=Amount of individual item/Amount of base*100
3. Vertical analysis for the first 3 items for 2016 and 2015 is calculated as under:
2015
In the given question, revenue is taken as base and cost of goods sold and gross profit are calculated as percentage of sales.
year 20162015
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