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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
Publisher: Cengage Learning
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
Publisher: Cengage Learning
ISBN: 9781337115773
Chapter 15, Problem 11BEA
Textbook Problem
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Scherer Company provided the following income statements for its first 3 years of operation:

Chapter 15, Problem 11BEA, Scherer Company provided the following income statements for its first 3 years of operation: Refer

Refer to the information for Scherer Company on the previous page.

Required:

Prepare common-size income statements by using Year 1 as the base period. (Note: Round answers to the nearest whole percentage.)

To determine

Construct the common-size income statement with year1 as the base period.

Explanation of Solution

Income Statement:

The statement that shows revenue and expenses incurred over a period of time (usually one year) is called income statement. It is used for external financial reporting as it helps the outsiders and investors in evaluating the firm’s financial health.

Common-size analysis

One of the techniques of financial statement analysis is common-size analysis where each item in the financial statement is expressed in terms of percentage to compare present statement with the statement of the previous year. Horizontal and vertical analyses are two forms of analysis under common-size analysis.

Income statement of the Company SC:

 Year 1Year 2Year 3
Particulars($)(%)($)(%)($)(%)
Net Sales1,000,00010011,100,00011021,300,0001303
Less: Cost of goods sold300,000100310,000103364,000121
Gross margin700,000100790,000113936,000134
Less: Operating expenses421,000100484,000115591,000140
   Income taxes111,600100122,400110137,800123
Net income167,400100183,600110207,200124

Table (1)

Working Note:

1...

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Chapter 15 Solutions

Managerial Accounting: The Cornerstone of Business Decision-Making
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