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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Vertical analysis for income statement
For 20Y6, Fishing Experiences Inc. initialed a sales promotion campaign that included the expenditure of an additional $45,000 for advertising. At the end of the year, Colt Schultz. the president, is presented with the following condensed comparative income statement:

Instructions
Prepare a comparative income statement for the two-year period, presenting a vertical analysis of each item in relationship to sales for each of the years.

To determine

Concept Introduction:

Vertical Analysis:

Vertical Analysis is used to analyze the % of items in statement for a particular period as the % of total amount. Vertical Analysis is done for a particular period for different items. For example, analysis of % of current assets as % of Total assets for a particular year is done using the Vertical analysis.

To Prepare:

A comparative income statement using Vertical analysis.

Explanation

A comparative income statement using Vertical analysis is prepared as follows:

    Vertical Analysis of Income Statement
    20X620Y5
    Amount%Amount%
    A (A/1200000)B(B/1000000)
    Sales $ 1,200,000 100.00% $ 1,000,000 100.00%
    Cost of Goods Sold $ (624,000)-52.00% $ (558,000)-55.80%
    Gross Profit $ 576,000 48.00% $ 442,000 44.20%
      Selling expenses $ (120,000)-10...

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