Concept Introduction:
Vertical Analysis:
Vertical Analysis is used to analyses the % of items in statement for a particular period as the % of total amount. Vertical Analysis is done for particular period for different items. For example analysis of % of assets as % of Total assets for a particular year is done using the Vertical analysis.
Requirement-a:
To Prepare:
A comparative income statement using Vertical analysis
Answer to Problem 9.1E
A comparative income statement using Vertical analysis is as follows:
Comparative income statement using Vertical analysis | ||||
20Y8 | 20Y8 | |||
$ | Common Size % | $ | Common Size % | |
Sales | $ 900,000 | 100.0% | $ 725,000 | 100.0% |
Cost of Goods sold | $(558,000) | -62.0% | $(435,000) | -60.0% |
Gross Profit | $ 342,000 | 38.0% | $ 290,000 | 40.0% |
Selling expenses | $(117,000) | -13.0% | $(116,000) | -16.0% |
Administrative expenses | $ (63,000) | -7.0% | $ (63,250) | -8.7% |
Income Tax Expense | $ (76,500) | -8.5% | $ (58,000) | -8.0% |
Net Income | $ 85,500 | 9.5% | $ 52,750 | 7.3% |
Explanation of Solution
A comparative income statement using Vertical analysis is prepared as follows:
Comparative income statement using Vertical analysis | ||||
20Y8 | 20Y8 | |||
$ | Common Size % | $ | Common Size % | |
A | B = A / Sales | C | D = C / Sales | |
Sales | $ 900,000 | 100.0% | $ 725,000 | 100.0% |
Cost of Goods sold | $(558,000) | -62.0% | $(435,000) | -60.0% |
Gross Profit | $ 342,000 | 38.0% | $ 290,000 | 40.0% |
Selling expenses | $(117,000) | -13.0% | $(116,000) | -16.0% |
Administrative expenses | $ (63,000) | -7.0% | $ (63,250) | -8.7% |
Income Tax Expense | $ (76,500) | -8.5% | $ (58,000) | -8.0% |
Net Income | $ 85,500 | 9.5% | $ 52,750 | 7.3% |
Concept Introduction:
Vertical Analysis:
Vertical Analysis is used to analyses the % of items in statement for a particular period as the % of total amount. Vertical Analysis is done for particular period for different items. For example analysis of % of assets as % of Total assets for a particular year is done using the Vertical analysis.
Requirement-a:
To Indicate:
Significant changes shown by the comparative income statement
Answer to Problem 9.1E
Significant changes shown by the comparative income statement are as follows:
- Cost of goods sold % has increased in the year 20Y8 as compared with the year 20Y7
- Selling expenses % has reduced in the year 20Y8 as compared with the year 20Y7
- Income Tax Expense % has increased in the year 20Y8 as compared with the year 20Y7
Explanation of Solution
A comparative income statement using Vertical analysis is prepared as follows:
Comparative income statement using Vertical analysis | ||||
20Y8 | 20Y8 | |||
$ | Common Size % | $ | Common Size % | |
A | B = A / Sales | C | D = C / Sales | |
Sales | $ 900,000 | 100.0% | $ 725,000 | 100.0% |
Cost of Goods sold | $(558,000) | -62.0% | $(435,000) | -60.0% |
Gross Profit | $ 342,000 | 38.0% | $ 290,000 | 40.0% |
Selling Expense | $(117,000) | -13.0% | $(116,000) | -16.0% |
Administrative expenses | $ (63,000) | -7.0% | $ (63,250) | -8.7% |
Income Tax Expense | $ (76,500) | -8.5% | $ (58,000) | -8.0% |
Net Income | $ 85,500 | 9.5% | $ 52,750 | 7.3% |
Significant changes shown by the comparative income statement are as follows:
- Cost of goods sold % has increased in the year 20Y8 as compared with the year 20Y7
- Selling expenses % has reduced in the year 20Y8 as compared with the year 20Y7
- Income Tax Expense % has increased in the year 20Y8 as compared with the year 20Y7
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Chapter 9 Solutions
Survey of Accounting (Accounting I)
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