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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 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:

Fielder Industries Inc.

Comparative Income Statement

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

  20Y2 20Y1
Sales.................... $1,300,000 $1,180,000
Cost of goods sold........ 682,500 613,600
Gross profit.............. $ 617,500 $ 566,400
Selling expenses......... $ 260,000 $ 188,800
Administrative expenses……….. 169,000 177,000
Total operating expenses……….. $ 429,000 $ 365,800
Income from operations…….. $ 188,500 $ 200,600
Other revenue........... 78,000 70,800
Income before income tax $ 266,500 $ 271,400
Income tax expense...... 117,000 106,200
Net income.............. $ 149,500 $ 165,200

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 (I).

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

2)

To determine

To comment: Significant relationships revealed by the horizontal analysis.

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