Income Statement
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Vertical analysis
An analysis that compares each item in a current statement with a total amount within the same statement.
of income statement
Instructions
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Income Statement
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Final Question
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View Mode Selection
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Instructions
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:
Question not attempted.
| Indigo Company |
| Comparative Income Statement |
| For the Years Ended December 31, 2016 and 2015 |
| 1 | 2016 | 2015 | |
| 2 | Sales | $810,000.00 | $500,000.00 |
| 3 | Cost of goods sold | 283,500.00 | 185,000.00 |
| 4 | Gross profit | $526,500.00 | $315,000.00 |
| 5 | Selling expenses | $162,000.00 | $90,000.00 |
| 6 | Administrative expenses | 56,700.00 | 45,000.00 |
| 7 | Total operating expenses | $218,700.00 | $135,000.00 |
| 8 | Income from operations | $307,800.00 | $180,000.00 |
| 9 | Other income | 72,900.00 | 45,000.00 |
| 10 | Income before income tax | $380,700.00 | $225,000.00 |
| 11 | Income tax expense | 210,600.00 | 130,000.00 |
| 12 | Net income | $170,100.00 | $95,000.00 |
| Required: | |
| 1. | Prepare a comparative income statement for the two-year period, presenting an analysis of each item in relationship to sales for each of the years. Round your percentages to one decimal place. Enter all amounts as positive numbers. |
| 2. | To the extent the data permit, comment on the significant relationships revealed by the vertical analysis prepared in (1). |
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Income Statement
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.
Question not attempted.
| 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 | $810,000.00 | $500,000.00 | ||
| 4 | Cost of goods sold | 283,500.00 | 185,000.00 | ||
| 5 | Gross profit | $526,500.00 | $315,000.00 | ||
| 6 | Selling expenses | $162,000.00 | $90,000.00 | ||
| 7 | Administrative expenses | 56,700.00 | 45,000.00 | ||
| 8 | Total operating expenses | $218,700.00 | $135,000.00 | ||
| 9 | Income from operations | $307,800.00 | $180,000.00 | ||
| 10 | Other income | 72,900.00 | 45,000.00 | ||
| 11 | Income before income tax | $380,700.00 | $225,000.00 | ||
| 12 | Income tax expense | 210,600.00 | 130,000.00 | ||
| 13 | Net income | $170,100.00 | $95,000.00 |
Solution
| 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 | $810,000.00 | $500,000.00 | ||
| 4 | Cost of goods sold | 283,500.00 | 185,000.00 | ||
| 5 | Gross profit | $526,500.00 | $315,000.00 | ||
| 6 | Selling expenses | $162,000.00 | $90,000.00 | ||
| 7 | Administrative expenses | 56,700.00 | 45,000.00 | ||
| 8 | Total operating expenses | $218,700.00 | $135,000.00 | ||
| 9 | Income from operations | $307,800.00 | $180,000.00 | ||
| 10 | Other income | 72,900.00 | 45,000.00 | ||
| 11 | Income before income tax | $380,700.00 | $225,000.00 | ||
| 12 | Income tax expense | 210,600.00 | 130,000.00 | ||
| 13 | Net income | $170,100.00 | $95,000.00 |
Points:
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Final Question
2. Comment on the significant relationships revealed by the vertical analysis prepared in (1).
The vertical analysis indicates that the costs other than selling expenses (cost of goods sold and administrative expenses) selector 1
deteriorated
improved
as a percentage of sales. As a result, net income as a percentage of sales selector 2
increased
decreased
by 2 percentage points. The sales promotion campaign appears to have been selector 3
unsuccessful
successful
. While selling expenses as a percent of sales selector 4
increased
decreased
slightly, the selector 5
increased
decreased
cost was more than made up for by selector 6
increased
decreased
sales.
Points:
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Explanation
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