Preparing Income Statements by Using Net Sales as the Base: Vertical Analysis Al
ID: 2485938 • Letter: P
Question
Preparing Income Statements by Using Net Sales as the Base: Vertical Analysis
Allyson Company provided the following income statements for its first 3 years of operation:
Required:
Prepare common-size income statements by using net sales as the base. (Note: Round answers to the nearest whole percentage.)
Allyson Company
Income Statements
Years of Operation
Year 1 Dollars
Year 1 Percent
Year 2 Dollars
Year 2 Percent
Year 3 Dollars
Year 3 Percent
Net sales
$1,000,000
Correct 12
$1,100,000
Correct 14
$1,250,000
Correct 16
Less: Cost of goods sold
(700,000)
Correct 19
(750,000)
Correct 21
(810,000)
Correct 23
Gross margin
$ 300,000
Correct 26
$ 350,000
Correct 28
$ 440,000
Correct 30
Less:
Operating expenses
(180,000)
Correct 34
(240,000)
Correct 36
(310,000)
Correct 38
Income taxes
(60,000)
Correct 41
(44,000)
Correct 43
(52,000)
Correct 45
Net income
$ 60,000
Correct 48
$ 66,000
Correct 50
$ 78,000
Correct 52
Year 1 Year 2 Year 3 Net sales $1,000,000 $1,100,000 $1,250,000 Less: Cost of goods sold (700,000) (750,000) (810,000) Gross margin $ 300,000 $ 350,000 $ 440,000 Less: Operating expenses (180,000) (240,000) (310,000) Income taxes (60,000) (44,000) (52,000) Net income $ 60,000 $ 66,000 $ 78,000Explanation / Answer
Year 1 Dollar Year 1 Percent Year 2 Dollars Year 2 Percent Year 3 Dollars Year 3 Percent Net Sales $ 1,000,000 100 $1,100,000 100 $1,250,000 100 Less: Cost of Goods Sold (700,000) (70) (750,000) (68) (810,000) (65) Gross Margin $300,000 30 $350,000 32 $440,000 35 Less: Operating Expenses (180,000) (18) (240,000) (22) (310,000) (25) Income Taxes (60,000) (6) (44,000) (4) (52,000) (4) Net Income $60,000 6 $66,000 6 $78,000 6