3. EX 14-1 Revenue and expense data for Innovation Quarter Inc. for two recent y
ID: 2532367 • Letter: 3
Question
3. EX 14-1 Revenue and expense data for Innovation Quarter Inc. for two recent years are as follows: Vertical analysis of income statement Objective 2 Previous Year $3,600,000 1,872,000 648,000 360,000 216,000 Current Year $4,000,000 Sales Cost of goods sold Selling expenses Administrative expenses Income tax expense 2,280,000 600,000 520,000 240,000 A. Prepare an income statement in comparative form, stating each item for both years as a percent of sales. (Round to the nearest whole percentage.) B. Comment on the significant changes disclosed by the comparnive income statement. + Upload File No files uploaded for this question 5:33 PM pe here to search F7 F8 F9 F4 F5Explanation / Answer
A.
B. The significant changes disclosed by the comparative statements are:
1. There has been an increase in the cost of goods sold from 52% in the previous year to 57% in the current year, thereby resulting in a decrease in the gross profit from 48% to 43%.
2. Income from operations has decreased from 20% to 15%. This change is also on account of the increase in cost of goods sold as the total expenses have remained unchanged over the two years though there have been minor changes in the selling expenses and administrative expenses year-on-year.
3. Net income has also decreased by 5% due to the increase in cost of goods sold by the same percentage though the income tax expense for both years has remained unchanged at 6% of sales.
Innovation Quarter Inc. Income Statement For the Years Ended Current Year Previous Year Sales 4000000 100% 3600000 100% Cost of goods sold 2280000 57% 1872000 52% Gross profit 1720000 43% 1728000 48% Expenses: Selling expenses 600000 15% 648000 18% Administrative expenses 520000 13% 360000 10% Total expenses 1120000 28% 1008000 28% Income from operations 600000 15% 720000 20% Income tax expense 240000 6% 216000 6% Net income 360000 9% 504000 14%Related Questions
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