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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Vertical analysts 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

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
Vertical analysis for income statement is performed by setting the net sales as 1...

2.

To determine

To comment: Significant relationships revealed by the vertical analysis.

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