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Vertical analysis of income statement Revenue and expense data for Innovation Quarter Inc. for two recent years are as follows: Current Year Previous Year Sales $4,000,000 $3,600,000 Cost of goods sold 2,280,000 1,872,000 Selling expenses 600,000 648,000 Administrative expenses 520,000 360,000 Income tax expense 240,000 216,000 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 comparative income statement.

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Corporate Financial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781305653535

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Chapter
Section
BuyFindarrow_forward

Corporate Financial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781305653535
Chapter 14, Problem 14.1EX
Textbook Problem
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Vertical analysis of income statement

Revenue and expense data for Innovation Quarter Inc. for two recent years are as follows:

  Current Year Previous Year
Sales $4,000,000 $3,600,000
Cost of goods sold 2,280,000 1,872,000
Selling expenses 600,000 648,000
Administrative expenses 520,000 360,000
Income tax expense 240,000 216,000
  1. 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.)
  2. B. Comment on the significant changes disclosed by the comparative income statement.

To determine

Vertical Analysis

Vertical analysis is prepared to analyze the relationship among various financial statements with a particular base amount.

Formula:

Vertical analysis percentage =(Specific itemBaseamount)×100

This analysis is otherwise called as common-size statement.

To prepare: Comparative income statement for the two-year period.

Given info: Income statement for the two year period.

Explanation of Solution

 Prepare the vertical analysis of the comparative income statement of Company I in the table presented as below:

                                                             Company I

                                                Comparative Income Statement

Particulars Current Year Previous Year
Amount Percent Amount Percent
  $

2.

To determine

To comment: Significant relationships revealed by the vertical analysis.

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Chapter 14 Solutions

Corporate Financial Accounting
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