ii alalysis prepared in (1). PR 14-2A Vertical analysis of income statement Obj.
ID: 2587766 • Letter: I
Question
ii alalysis prepared in (1). PR 14-2A Vertical analysis of income statement Obj. 2 me, 20Y2, 100% For 20Y2, Tri-Comic Company initiated a sales promotion campaign that included the expenditure of an additional $50,000 for advertising. At the end of the year, Lumi Neer the president, is presented with t he following condensed comparative income statement: Tri-Comic Company Comparative Income Statement For the Years Ended December 31, 20Y2 and 20Y1 CEL TEMPLATE 20Y2 20Y1 $1,500,000 $1,250,000 475,000 510,000 $ 270,000 180,000 200,000 156,250 $ 450,000 356,250 60,00050,000 $ 600,000 468,750 Income before income tax Income tax expense. . . . . . . . . . . . . . . . . . 450,000 375,000 2 (Continued) $ 150,000 93,750Explanation / Answer
1. COMPARATIVE INCOME STATEMENT
(for the years ended December 31, 2012 and 2011)
2. The vertical analysis, or common size statement shown above looks at the relative sie of line items. Each item in the statement is shown as a percentage of sales i.e. a relationship is establishes between all the items and sales in pecentage terms. This statement has the following benefits:
(a) Compare current years' amounts to past years' amounts
(b) Calculates each item as a percentage of sales
(c) sees if performance has improved over time
Thus the above analysis shows that for 2012, cost of goods sold and gross profit are 34% and 66% of net sales respectively. The corresponding % for 2011 is 38% and 62%. Thus the gross profit percentage has increased in 2012 as compared to 2011. Also, total operating expenses have also increased form 28.5% to 30% form 2011 to 2012. Subsequently the net income has shown a massive increase from 6.91% to 10% over the period.
ITEMS 2012($) 2012(%) 2011($) 2011(%) Sales 1,500,000 100.0 1,250,000 100.0 Cost of goods sold 510,000 34.0 475,000 38.0 Gross Profit 990,000 66.0 775,000 62.0 Selling Expenses 270,000 18.0 200,000 16.0 Administrative Expenses 180,000 12.0 156,250 12.5 Total operating Expenses 450,000 30.0 356,250 28.5 Income from operations 540,000 36.0 418,750 27.91 Other incomes 60,000 4.0 50,000 4.0 Income before income taxe 600,000 40.0 468,750 31.91 Income Tax expense 450,000 30.0 375,000 25.0 Net Income 150,000 10.0 93,750 6.91Related Questions
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