Revenue and expense data for Innovation Quarter Inc. for two recent years are as follows:Current Year Previous YearSales $4,000,000 $3,600,000Cost of goods sold 2,280,000 1,872,000Selling expenses 600,000 648,000Administrative expenses 520,000 360,000Income tax expense 240,000 216,000a. 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. - Common Size Income Statement

                                                               Previous Year                 Current Year

Sales                                                               100%                               100%

Cost of Goods sold                                         52%                                57%

Gross Profit                                                      48%                                43%

Operating Expenses

Selling Expense                                                18%                                15%

Administrative Expense                                    10%                               13%

Total Operating Expense                                28%                               28%

Profit Before Tax                                              20%                                15%

Income Tax                                                         6%                                  6%

Profit After Tax                                                  14%                                  9%

Explanation:

This is basically known as common sizing where each item in the financial statement is represented as a percentage of a base item. For income statement it is usually revenue and for statement of financial position (balance sheet) it is total asset and total liabilities.

The Comparative Vertical Analysis of Income Statement is

 Current Year     %         Previous Year     %

Sales                                  $4,000,000   100%      $3,600,000     100%

Cost of goods sold              2,280,000    57%         1,872,000      52%

Gross profit                         $1,720,000    43%       $1,728,000      48%

Selling expense                    600,000     15%          648,000        18%

Administrative expenses       520,000     13%          360,000        10%

Income tax expense              240,000       6%           216,000         6%

After Tax Income                 $360,000       9%       $504,000         14%

Explanation:

Calculations are given below

The Vertical Analysis of the Income Statement Revenue and expense data for Innovation Quarter Inc. for two recent years are ,

                                               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

Innovation Quarter Inc. can utilize this upward examination to communicate the connection between each detail and the business income.

The upward investigation helps in learning the rate expansions in every factor. With the investigation, the administration of Innovation Quarter Inc. can embrace further examinations to get familiar with the reasons for the various exhibitions and learn approaches to control them.

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