ACCTG 1B Chapter Notes - Chapter CH. 15 Financial Statement Analysis: Financial Statement, Asset, Current Liability
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Vertical Analysis of Income Statement
For 20Y2, Tri-Comic Company initiated a sales promotion campaignthat included the expenditure of an additional $18,000 foradvertising. At the end of the year, Lumi Neer, the president, ispresented with the following condensed comparative incomestatement:
Tri-Comic Company Comparative Income Statement For the Years Ended December 31, 20Y2 and 20Y1 | |||
20Y2 | 20Y1 | ||
Sales | $639,000 | $550,000 | |
Cost of goods sold | 325,890 | 308,000 | |
Gross profit | $313,110 | $242,000 | |
Selling expenses | $121,410 | $99,000 | |
Administrative expenses | 63,900 | 66,000 | |
Total operating expenses | $185,310 | $165,000 | |
Income from operations | $127,800 | $77,000 | |
Other income | 19,170 | 33,000 | |
Income before income tax | $146,970 | $110,000 | |
Income tax expense | 57,510 | 44,000 | |
Net income | $89,460 | $66,000 |
Required:
1. Prepare a comparative income statement forthe two-year period, presenting an analysis of each item inrelationship to sales for each of the years. Enter percentages aswhole numbers. Enter all amounts as positive numbers.
Tri-ComicCompany | ||||
ComparativeIncome Statement | ||||
For the YearsEnded December 31, 20Y2 and 20Y1 | ||||
20Y2 Amount | 20Y2 Percent | 20Y1 Amount | 20Y1 Percent | |
Sales | $639,000 | % | $550,000 | % |
Cost of goods sold | 325,890 | % | 308,000 | % |
Gross profit | $313,110 | % | $242,000 | % |
Selling expenses | 121,410 | % | 99,000 | % |
Administrative expenses | 63,900 | % | 66,000 | % |
Total operating expenses | $185,310 | % | $165,000 | % |
Income from operations | $127,800 | % | $77,000 | % |
Other income | 19,170 | % | 33,000 | % |
Income before income tax | $146,970 | % | $110,000 | % |
Income tax expense | 57,510 | % | 44,000 | % |
Net income | $89,460 | % | $66,000 | % |
2. The vertical analysis indicates that thecosts other than selling expenses (cost of goods sold andadministrative expenses) as a percentage of sales. As a result, netincome as a percentage of sales . The sales promotion campaignappears to have been . While selling expenses as a percent of salesslightly, the cost was more than made up for by sales.
Instructions
Income statement data for Moreno Company for two recent yearsended December 31, are as follows:
Moreno Company |
Comparative Income Statement |
For the Years Ended December 31, 20-- |
1 | Current Year | Previous Year | |
2 | Sales | $1,948,800.00 | $1,740,000.00 |
3 | Cost of goods sold | 1,674,750.00 | 1,522,500.00 |
4 | Gross profit | $274,050.00 | $217,500.00 |
5 | Selling expenses | $71,875.00 | $62,500.00 |
6 | Administrative expenses | 51,520.00 | 46,000.00 |
7 | Total operating expenses | $123,395.00 | $108,500.00 |
8 | Income before income tax | $150,655.00 | $109,000.00 |
9 | Income tax expense | 13,398.00 | 8,700.00 |
10 | Net income | $137,257.00 | $100,300.00 |
Required: | |
A. | Prepare a comparative incomestatement with horizontal analysis for the two-year period,indicating the increase (decrease) for the current year whencompared with the previous year. Use the minus sign to indicate anamount or percent decrease. If required, round percentages to onedecimal place. |
B. | What conclusions can be drawnfrom the horizontal analysis? |
X
Income Statement
Prepare a comparative income statement with horizontal analysisfor the two-year period, indicating the increase (decrease) for thecurrent year when compared with the previous year. Use the minussign to indicate an amount or percent decrease. If required, roundpercentages to one decimal place.
Moreno Company |
Comparative Income Statement |
For the Years Ended December 31, 20-- |
1 | Increase (Decrease) | Increase (Decrease) | |||
2 | Current Year | Previous Year | Amount | Percent | |
3 | Sales | $1,948,800.00 | $1,740,000.00 | ||
4 | Cost of goods sold | 1,674,750.00 | 1,522,500.00 | ||
5 | Gross profit | $274,050.00 | $217,500.00 | ||
6 | Selling expenses | $71,875.00 | $62,500.00 | ||
7 | Administrative expenses | 51,520.00 | 46,000.00 | ||
8 | Total operating expenses | $123,395.00 | $108,500.00 | ||
9 | Income before income tax | $150,655.00 | $109,000.00 | ||
10 | Income tax expense | 13,398.00 | 8,700.00 | ||
11 | Net income | $137,257.00 | $100,300.00 |