Explanation Vertical analysis of income statement represents each account as the percentage of net sales revenue. So use the below formula to calculate the percentage of net sales revenue, refer working note for complete calculation: Percentage of Net Sales Revenue = ( Amount of an account Amount of Net Sales Revenue ) × 100 K Company Income Statement Compared with Industry Average Year Ended December 31, 2018 Account Title Amount ($) Percentage (%) Industry Average Net Sales Revenue $778,000 100.0% 100.0% Cost of Goods Sold $524,372 67.4% 65.8% Gross Profit $253,628 32.6% 34.2% Operating Expenses $159,490 20.5% 19.7% Operating Income $94,138 12.1% 14.5% Other Expenses $6,224 0.8% 0.4% Net Income $87,914 11.3% 14.1% Working note: Account Title Amount ($) Calculation Percentage (%) Net Sales Revenue $778,000 100.0% Cost of Goods Sold $524,372 ( $ 524 , 372 $ 778 , 000 ) × 100 67.4% Gross Profit $253,628 ( $ 253 , 628 $ 778 , 000 ) × 100 32.6% Operating Expenses $159,490 ( $ 159 , 490 $ 778 , 000 ) × 100 20.5% Operating Income $94,138 ( $ 94 , 138 $ 778 , 000 ) × 100 12.1% Other Expenses $6,224 ( $ 6 , 224 $ 778 , 000 ) × 100 0.8% Net Income $87,914 ( $ 87 , 914 $ 778 , 000 ) × 100 11.3% Vertical analysis of balance sheet represents each account as the percentage of total assets. So use the below formula to calculate the percentage of total assets, refer working note for complete calculation. Percentage of Total Assets = ( Amount of an Account Amount of Total Assets ) × 100 K Company Balance Sheet Compared with Industry Average December 31, 2018 Assets Amount ($) Percentage (%) Industry Average Current Assets 339,000 67... To determine 2. To Compare: K Company’s profit performance and financial position with the average for the industry.

12th Edition

ISBN: 9780134486444

Author: Tracie L. Miller-Nobles, Brenda L. Mattison, Ella Mae Matsumura

Publisher: PEARSON

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Question

Chapter 17, Problem P17.24APGA

To determine

Vertical Analysis: The financial analysis tool that shows each amount as the proportion of base amount is called vertical analysis. Revenue and total assets are considered as the base amount and presented as 100% figure in the income statement and balance sheet respectively. It is useful to compare the financials of different companies in the same industry.

1.

To Prepare: Vertical analysis of K Company’s income statement and balance sheet.

To determine

2.

To Compare: K Company’s profit performance and financial position with the average for the industry.

Expert Solution & Answer

Chapter 17 Solutions

Horngren's Accounting (12th Edition)

Ch. 17 - Prob. 1QC Ch. 17 - Prob. 2QC Ch. 17 - Prob. 3QC Ch. 17 - Prob. 4QC Ch. 17 - Prob. 5QC Ch. 17 - Prob. 6QC Ch. 17 - Prob. 7QC Ch. 17 - Prob. 8QC Ch. 17 - Prob. 9QC Ch. 17 - Prob. 10QC

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