Vertical Analysis of Income Statement
Revenue and expense data for Innovation Quarter Inc. for tworecent years are as follows:
| CurrentYear | PreviousYear |
| Sales | $500,000 | | $440,000 | |
| Cost of goods sold | 340,000 | | 277,200 | |
| Selling expenses | 65,000 | | 66,000 | |
| Administrative expenses | 70,000 | | 57,200 | |
| Income tax expense | 10,000 | | 17,600 | |
a. Prepare an income statement in comparativeform, stating each item for both years as a percent of sales. Ifrequired, round percentages to one decimal place. Enter all amountsas positive numbers.
| Innovation Quarter Inc. |
| Comparative Income Statement |
| For the Years Ended December 31 |
| Current year Amount | Current year Percent | Previous year Amount | Previous year Percent |
| Sales | $500,000 | % | $440,000 | % |
| Cost of goods sold | 340,000 | % | 277,200 | % |
| $ | % | $ | % |
| Selling expenses | 65,000 | % | 66,000 | % |
| Administrative expenses | 70,000 | % | 57,200 | % |
| $ | % | $ | % |
| | % | | % |
| Income tax expense | 10,000 | % | 17,600 | % |
| $ | % | $ | % |
b. The vertical analysis indicates that thecost of goods sold as a percent of sales by 5percentage points, while selling expenses by 2percentage points, and administrative expenses by1 percentage points. Thus, net income as a percent ofsales by 2 percentage points.
