Vertical Analysis of Income Statement For 2014, Othere Technology Company initia

Question

Vertical Analysis of Income Statement

For 2014, Othere Technology Company initiated a sales promotion campaign that included the expenditure of an additional $15,000 for advertising. At the end of the year, George Wallace, the president, is presented with the following condensed comparative income statement:

Required:

1. Prepare a comparative income statement for the two-year period, presenting an analysis of each item in relationship to net sales for each of the years. Enter percentages as whole numbers. Enter all amounts as positive numbers.

Othere Technology Company

Comparative Income Statement

For the Years Ended December 31, 2014 and 2013

2014 Amount

2014 Percent

2013 Amount

2013 Percent

Sales

$ 540,750

  %

$ 461,040

  %

Sales returns and allowances

15,750

  %

9,040

  %

Net sales

$ 525,000

  %

$ 452,000

  %

Cost of goods sold

257,250

  %

239,560

  %

Gross profit

$ 267,750

  %

$ 212,440

  %

Selling expenses

$ 110,250

  %

$ 90,400

  %

Administrative expenses

57,750

  %

58,760

  %

Total operating expenses

$ 162,750

  %

$ 149,160

  %

Income from operations

$ 105,000

  %

$ 63,280

  %

Other income

15,750

  %

18,080

  %

Income before income tax

$ 120,750

  %

$ 81,360

  %

Income tax expense

47,250

  %

31,640

  %

Net income

$ 73,500

  %

$ 49,720

  %

2. The vertical analysis indicates that the costs other than selling expenses (cost of goods sold and administrative expenses) SelectimproveddeterioratedCorrect 1 of Item 2 as a percentage of sales. As a result, net income as a percentage of sales SelectincreaseddecreasedCorrect 2 of Item 2. The sales promotion campaign appears to have been SelectsuccessfulunsuccessfulCorrect 3 of Item 2. While selling expenses as a percent of sales SelectincreaseddecreasedCorrect 4 of Item 2 slightly, the SelectincreaseddecreasedCorrect 5 of Item 2 cost was more than made up for by SelectincreaseddecreasedCorrect 6 of Item 2 sales.

Othere Technology Company
Comparative Income Statement
For the Years Ended December 31, 2014 and 2013 2014 2013 Sales $540,750 $461,040 Sales returns and allowances 15,750 9,040 Net sales $525,000 $452,000 Cost of goods sold 257,250 239,560 Gross profit $267,750 $212,440 Selling expenses $110,250 $90,400 Administrative expenses 57,750 58,760 Total operating expenses $162,750 $149,160 Income from operations $105,000 $63,280 Other income 15,750 18,080 Income before income tax $120,750 $81,360 Income tax expense 47,250 31,640 Net income $73,500 $49,720

Explanation / Answer

  Every line item on an income statement is stated as a percentage of gross sales

For the Years Ended December 31, 2014 and 2013

2014 Amount

2014 Percent

2013 Amount

2013 Percent

Sales

$ 540,750

  %

$ 461,040

100%

Sales returns and allowances

15,750

%

9,040

2 %

Net sales

$ 525,000

97 %

$ 452,000

98%

Cost of goods sold

257,250

48%

239,560

52%

Gross profit

$ 267,750

50 %

$ 212,440

46%

Selling expenses

$ 110,250

20%

$ 90,400

20%

Administrative expenses

57,750

11%

58,760

13%

Total operating expenses

$ 162,750

30%

$ 149,160

32 %

Income from operations

$ 105,000

19 %

$ 63,280

14 %

Other income

15,750

3%

18,080

4 %

Income before income tax

$ 120,750

22%

$ 81,360

18 %

Income tax expense

47,250

9%

31,640

7%

Net income

part 2 of the question is not in a proper format so I am sorry , i couldn't solve it due to improper formatting of the question

$ 73,500

14%

$ 49,720

11%

  Every line item on an income statement is stated as a percentage of gross sales

For the Years Ended December 31, 2014 and 2013

2014 Amount

2014 Percent

2013 Amount

2013 Percent

Sales

$ 540,750

100

  %

$ 461,040

100%

Sales returns and allowances

15,750

   3

%

9,040

2 %

Net sales

$ 525,000

97 %

$ 452,000

98%

Cost of goods sold

257,250

48%

239,560

52%

Gross profit

$ 267,750

50 %

$ 212,440

46%

Selling expenses

$ 110,250

20%

$ 90,400

20%

Administrative expenses

57,750

11%

58,760

13%

Total operating expenses

$ 162,750

30%

$ 149,160

32 %

Income from operations

$ 105,000

19 %

$ 63,280

14 %

Other income

15,750

3%

18,080

4 %

Income before income tax

$ 120,750

22%

$ 81,360

18 %

Income tax expense

47,250

9%

31,640

7%

Net income

part 2 of the question is not in a proper format so I am sorry , i couldn't solve it due to improper formatting of the question

$ 73,500

14%

$ 49,720

11%

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