Revenue and expense data for Innovation Quarter Inc. for two recent years are as

Question

Revenue and expense data for Innovation Quarter Inc. for two recent years are as follows:

a. Prepare an income statement in comparative form, stating each item for both years as a percent of sales. If required, round percentages to one decimal place. Enter all amounts as positive numbers.

b. The vertical analysis indicates that the cost of goods sold as a percent of sales by 5 percentage points, while selling expenses by 2 percentage points, and administrative expenses by 1 percentage points. Thus, net income as a percent of sales by 3 percentage points.

       Current Year        Previous Year Sales $381,000 $328,000 Cost of goods sold 220,980 173,840 Selling expenses 64,770 62,320 Administrative expenses 68,580 55,760 Income tax expense 11,430 13,120

Explanation / Answer

a.comparitive income statement:(workings are provided in brackets)

b.The vertical analysis indicates that the cost of goods sold as a percent of sales increased by 5 percentage points, while selling expenses reduced by 2 percentage points, and administrative expenses increased by 1 percentage point. Thus net income as a percent of sales decreased by 3 percentage point.

current year amount current year percent previous year amount previous year percent sales $381,000 (381,000/381,000*100)=>100% $328,000 (328,000/328,000*100)=>100% cost of goods sold 220,980 (220,980/381,000*100)=>58% 173,840 (173,840/328,000*100)=>53% gross profit 160,020 (160,020/381,000)*100=>42% 154,160 (154,160/328,000*100)=>47% selling expenses 64,770 (64,770/381,000)*100=>17% 62,320 (62,320/328,000*100)=>19% administrative expenses 68,580 (68,580/381,000)*100=>18% 55,760 (55,760/328,000*100)=>17% income before tax (gross profit - expenses) 26,670 (26,670/381,000)*100=>7% 36,080 (36,080/328,000*100)=>11% income tax 11,430 (11,430/381,000*100)=>3% 13,120 (13,120/328,000*100)=>4% net income 15,240 (15,240/381,000*100)=>4% 22,960 (22,960/328,000*100)=>7%

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