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1.) Vertical Analysis of Income Statement

Revenue and expense data for Innovation Quarter Inc. for two recent years are as follows:

Current Year Previous Year Sales $4,000,000 $3,600,000 Cost of goods sold 2,280,000 1,872,000 Selling expenses 600,000 648,000 Administrative expenses 520,000 360,000 Income tax expense 240,000 216,000 a. Prepare an income statement in comparative form, stating each item for both years as a percent of sales. If required, round percentages to one decimal place. Enter all amounts as positive numbers.

2.) Horizontal Analysis of the Income Statement

Income statement data for Winthrop Company for two recent years ended December 31 are as follows:

Current Year Previous Year Sales $2,280,000 $2,000,000 Cost of goods sold 1,960,000 1,750,000 Gross profit $320,000 $250,000 Selling expenses $156,500 $125,000 Administrative expenses 122,000 100,000 Total operating expenses $278,500 $225,000 Income before income tax $41,500 $25,000 Income tax expenses 16,600 10,000 Net income $24,900 $15,000

a. Prepare a comparative income statement with horizontal analysis, indicating the increase (decrease) for the current year when compared with the previous year. If required, round to one decimal place.

Innovation Quarter Inc. Comparative Income Statement For the Years Ended December 31 Current year Amount Current year Percent Previous year Amount Previous year Percent $4,000,000 $3,600,000 Sales Cost of goods sold 2,280,000 1,872,000 Selling expenses 600,000 648,000 Administrative expenses 520,000 360,000 Income tax expense 240,000 216,000 Winthrop Company Comparative Income Statement For the Years Ended December 31 Previous year Amount Increase (Decrease) Amount Increase (Decrease) Percent $2,000,000 Current year Amount $2,280,000 Sales Cost of goods sold 1,960,000 1,750,000 Gross profit $320,000 $250,000 Selling expenses 156,500 125,000 Administrative expenses 122,000 100,000 Total operating expenses $278,500 $225,000 Income before income tax 41,500 25,000 Income tax expense 16,600 10,000 Net income $24,900 $15,000

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