Chapter 17, Problem 2PA

Financial Accounting

15th Edition
Carl Warren + 2 others
ISBN: 9781337272124

Chapter
Section

Financial Accounting

15th Edition
Carl Warren + 2 others
ISBN: 9781337272124
Textbook Problem
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Vertical analysis of income statementFor 20Y2, Tri-Comic Company initiated a sales promotion campaign that included the expenditure of an additional $50,000 for advertising. At the end of the year, Lumi Neer, the president, is presented with the following condensed comparative income statement:Instructions 1. Prepare a comparative income statement for the two-year period, presenting an analysis of each item in relationship to sales for each of the years. Round percentages to one decimal place. 2. To the extent the data permit, comment on the significant relationships revealed by the vertical analysis prepared in (1). 1) To determine Prepare comparative income statement for the two-year period. Explanation Vertical Analysis Vertical analysis is prepared to analyze the relationship among various financial statements with a particular base amount. Formula: VerticalÂ analysisÂ percentageÂ =(SpecificÂ itemBaseâ€‰amount)Ã—100 This analysis is otherwise called as common-size statement. Prepare comparative income statement for the years ended December 31, 20Y2 and 20Y1.  T Company Comparative Income Statement for the Years Ended December 31, 20Y2 and 20Y1 Â 20Y2 20Y1 Amount Percent Amount Percent Â ($) (%) ( \$) (%) Sales 1,500,000 100

2)

To determine

Comment on the significant relationships revealed by the horizontal analysis.

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