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Vertical analysis of income statement For 20Y2, Fielder Industries Inc. initiated a sales promotion campaign that included the expenditure of an additional $40,000 for advertising. At the end of the year, Leif Grando, the president, is presented with the following condensed comparative income statement: Instructions 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 percentages to one decimal place.) 2. To the extent the data permit, comment on the significant relationships revealed by the vertical analysis prepared in (1).

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Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663

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Chapter
Section
BuyFindarrow_forward

Financial And Managerial Accounting

15th Edition
WARREN + 1 other
Publisher: Cengage Learning,
ISBN: 9781337902663
Chapter 14, Problem 2PB
Textbook Problem
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Vertical analysis of income statement

For 20Y2, Fielder Industries Inc. initiated a sales promotion campaign that included the expenditure of an additional $40,000 for advertising. At the end of the year, Leif Grando, the president, is presented with the following condensed comparative income statement:

Chapter 14, Problem 2PB, Vertical analysis of income statement For 20Y2, Fielder Industries Inc. initiated a sales promotion

Instructions

  1. 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 percentages to one decimal place.)
  2. 2. To the extent the data permit, comment on the significant relationships revealed by the vertical analysis prepared in (1).

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 comparative income statement for the years ended December 31, 20Y2 and 20Y1.

F industries Comparative Income Statement

for the Years Ended December 31, 20Y2 and 20Y1

 20Y220Y1
AmountPercentAmountPercent
 ( $)(%)( $)(%)
Sales1,300,000100.01,180,000100.0
Less: Cost of goods sold682,50052.5613,60052.0
Gross profit617,50047.5566,40048.0
Less: Selling expenses260,00020...
To determine

Requirement 2:

To comment: Significant relationships revealed by the horizontal analysis.

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Financial And Managerial Accounting
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