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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

Common-sized income statement

Revenue and expense data for the current calendar year for Tannenhill Company and for the electronics industry are as follows. Tannenhill’s data are expressed in dollars. The electronics industry averages are expressed in percentages.

 

Tannenhill

Company

Electronics

Industry

Average

Sales $4,000,000 100%
Cost of goods sold 2,120,000 60
Gross profit $1,880,000 40%
Selling expenses $1,080,000 24%
Administrative expenses 640,000 14
Total operating expenses $ 1,720,000 38%
Operating income $ 160,000 2%
Other revenue 120,000 3
  $ 280.000 5%
Other expense 80,000 2
Income before income tax $ 200,000 3%
Income tax expense 80,000 2
Net income $ 120,000 1%

a. Prepare a common-sized income statement comparing the results of operations for Tannenhill Company with the industry average. Round to the nearest whole percentage.

b. As far as the data permit, comment on significant relationships revealed by the comparisons.

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 vertical analysis.

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