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Vertical analysis of income statement For 2016, Indigo Company initiated a sales promotion campaign that included the expenditure of an additional $39,000 for advertising. At the end of the year, Lumi Neer, 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 to one decimal place. 2. To the extent the data permit, comment on the significant relationships revealed by the vertical analysis prepared in (1).
Accounting (Text Only)
Solutions
Accounting (Text Only)
Vertical analysis of income statement
For 2016, Indigo Company initiated a sales promotion campaign that included the expenditure of an additional $39,000 for advertising. At the end of the year, Lumi Neer, 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 to one decimal place.
2. To the extent the data permit, comment on the significant relationships revealed by the vertical analysis prepared in (1).
Vertical Analysis
Vertical analysis is prepared to analyze the relationship among various financial statements with a particular base amount.
Formula:
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
Vertical analysis for income statement is performed by setting the net sales as 100 percentage a...
2.
To comment: Significant relationships revealed by the horizontal analysis.
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