ACCT 212 Study Guide - Deferral, Deferred Income, Net Income
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Revenue and expense data for Innovation Quarter Inc. for two recent years are as follows:
Current Year | Previous Year | |||
Sales | $381,000 | $328,000 | ||
Cost of goods sold | 220,980 | 173,840 | ||
Selling expenses | 64,770 | 62,320 | ||
Administrative expenses | 68,580 | 55,760 | ||
Income tax expense | 11,430 | 13,120 |
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.
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 | $381,000 | % | $328,000 | % |
Cost of goods sold | 220,980 | % | 173,840 | % |
$ | % | $ | % | |
Selling expenses | 64,770 | % | 62,320 | % |
Administrative expenses | 68,580 | % | 55,760 | % |
$ | % | $ | % | |
% | % | |||
Income tax expense | 11,430 | % | 13,120 | % |
$ | % | $ | % |
b. The vertical analysis indicates that the cost of goods sold as a percent of sales by 5 percentage points, while selling expenses by 2 percentage points, and administrative expenses by 1 percentage points. Thus, net income as a percent of sales by 3 percentage points.
Vertical Analysis of Income Statement
For 20Y2, Tri-Comic Company initiated a sales promotion campaignthat included the expenditure of an additional $18,000 foradvertising. At the end of the year, Lumi Neer, the president, ispresented with the following condensed comparative incomestatement:
Tri-Comic Company Comparative Income Statement For the Years Ended December 31, 20Y2 and 20Y1 | |||
20Y2 | 20Y1 | ||
Sales | $639,000 | $550,000 | |
Cost of goods sold | 325,890 | 308,000 | |
Gross profit | $313,110 | $242,000 | |
Selling expenses | $121,410 | $99,000 | |
Administrative expenses | 63,900 | 66,000 | |
Total operating expenses | $185,310 | $165,000 | |
Income from operations | $127,800 | $77,000 | |
Other income | 19,170 | 33,000 | |
Income before income tax | $146,970 | $110,000 | |
Income tax expense | 57,510 | 44,000 | |
Net income | $89,460 | $66,000 |
Required:
1. Prepare a comparative income statement forthe two-year period, presenting an analysis of each item inrelationship to sales for each of the years. Enter percentages aswhole numbers. Enter all amounts as positive numbers.
Tri-ComicCompany | ||||
ComparativeIncome Statement | ||||
For the YearsEnded December 31, 20Y2 and 20Y1 | ||||
20Y2 Amount | 20Y2 Percent | 20Y1 Amount | 20Y1 Percent | |
Sales | $639,000 | % | $550,000 | % |
Cost of goods sold | 325,890 | % | 308,000 | % |
Gross profit | $313,110 | % | $242,000 | % |
Selling expenses | 121,410 | % | 99,000 | % |
Administrative expenses | 63,900 | % | 66,000 | % |
Total operating expenses | $185,310 | % | $165,000 | % |
Income from operations | $127,800 | % | $77,000 | % |
Other income | 19,170 | % | 33,000 | % |
Income before income tax | $146,970 | % | $110,000 | % |
Income tax expense | 57,510 | % | 44,000 | % |
Net income | $89,460 | % | $66,000 | % |
2. The vertical analysis indicates that thecosts other than selling expenses (cost of goods sold andadministrative expenses) as a percentage of sales. As a result, netincome as a percentage of sales . The sales promotion campaignappears to have been . While selling expenses as a percent of salesslightly, the cost was more than made up for by sales.