For 2016, Indigo Company initiated a sales promotion campaign that included the
ID: 2540244 • Letter: F
Question
For 2016, Indigo Company initiated a sales promotion campaign that included the expenditure of an additional $39,000 for advertising. At the end of the year, Lumi Neer, the president, is presented with the following condensed comparative income statement:
Indigo Company
Comparative Income Statement
For the Years Ended December 31, 2016 and 2015
1
2016
2015
2
Sales
$890,000.00
$600,000.00
3
Cost of goods sold
320,400.00
228,000.00
4
Gross profit
$569,600.00
$372,000.00
5
Selling expenses
$142,400.00
$84,000.00
6
Administrative expenses
62,300.00
54,000.00
7
Total operating expenses
$204,700.00
$138,000.00
8
Income from operations
$364,900.00
$234,000.00
9
Other income
80,100.00
54,000.00
10
Income before income tax
$445,000.00
$288,000.00
11
Income tax expense
231,400.00
156,000.00
12
Net income
$213,600.00
$132,000.00
To the extent the data permit, comment on the significant relationships revealed by the vertical analysis prepared in (1).
1. Prepare an income statement in comparative form, stating each item for both years as a percent of sales. Round your percentages to one decimal place. Enter all amounts as positive numbers.
Indigo Company
Comparative Income Statement
For the Years Ended December 31, 2016 and 2015
1
2016
2016
2015
2015
2
Amount
Percent
Amount
Percent
3
Sales
$890,000.00
$600,000.00
4
Cost of goods sold
320,400.00
228,000.00
5
Gross profit
$569,600.00
$372,000.00
6
Selling expenses
$142,400.00
$84,000.00
7
Administrative expenses
62,300.00
54,000.00
8
Total operating expenses
$204,700.00
$138,000.00
9
Income from operations
$364,900.00
$234,000.00
10
Other income
80,100.00
54,000.00
11
Income before income tax
$445,000.00
$288,000.00
12
Income tax expense
231,400.00
156,000.00
13
Net income
$213,600.00
$132,000.00
Indigo Company
Comparative Income Statement
For the Years Ended December 31, 2016 and 2015
Explanation / Answer
Answer
Indigo Company
Comparative Income Statement
For the Years Ended December 31, 2016 and 2015
1
2016
2015
2
Amount ($)
Percent
Amount ($)
Percent
3
Sales
890000
100.00%
600000
100.00%
4
Cost of goods sold
320400
36.00%
228000
38.00%
5
Gross profit
569600
64.00%
372000
62.00%
6
Selling expenses
142400
16.00%
84000
14.00%
7
Administrative expenses
62300
7.00%
54000
9.00%
8
Total operating expenses
204700
23.00%
138000
23.00%
9
Income from operations
364900
41.00%
234000
39.00%
10
Other income
80100
9.00%
54000
9.00%
11
Income before income tax
445000
50.00%
288000
48.00%
12
Income tax expense
231400
26.00%
156000
26.00%
13
Net income
$213600
24.00%
$132000
22.00%
Indigo Company
Comparative Income Statement
For the Years Ended December 31, 2016 and 2015
1
2016
2015
2
Amount ($)
Percent
Amount ($)
Percent
3
Sales
890000
100.00%
600000
100.00%
4
Cost of goods sold
320400
36.00%
228000
38.00%
5
Gross profit
569600
64.00%
372000
62.00%
6
Selling expenses
142400
16.00%
84000
14.00%
7
Administrative expenses
62300
7.00%
54000
9.00%
8
Total operating expenses
204700
23.00%
138000
23.00%
9
Income from operations
364900
41.00%
234000
39.00%
10
Other income
80100
9.00%
54000
9.00%
11
Income before income tax
445000
50.00%
288000
48.00%
12
Income tax expense
231400
26.00%
156000
26.00%
13
Net income
$213600
24.00%
$132000
22.00%
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