2014 2013
Sales $1,500,000 $1,450,000
Cost of goods sold 930,000 812,000
Selling expenses 210,000 261,000
Administrative expenses 255,000 232,000
Income tax expense 52,500 72,500
a. Prepare an income statement in comparative form, stating each item for both 2014 and 2013 as a percent of sales. Round to one decimal place.
b. Comment on the significant changes disclosed by the comparative income statement.
Answer:
a. SOLDNER, Inc.
Comparative Income Statement
For the Years Ended December 31, 2014 and 2013
2014 2013
Amount Percent Amount Percent
Sales $1,500,000 100% $1,450,000 100%
Cost of goods sold 930,000 62% 812,000 56%
Gross profit $ 570,000 38% $ 638,000 44%
Selling expenses 210,000 14% 261,000 18%
Administrative expenses 255,000 17% 232,000 16%
Total operating expenses $ 465,000 31% $ 493,000 34%
Income from operations 105,000 7% 145,000 10%
Income tax expense 52,500 3.5% 72,500 5%
Net income $ 52,500 3.5% $ 72,500 5%
b. The vertical analysis indicates that the cost of goods sold as a percent of sales
increased by 6 percentage points (62% – 56%), while selling expenses decreased
by 4 percentage points (14% – 18%), and administrative expenses increased by 1%
(17% – 16%). Thus, net income as a percent of sales dropped by 1.5% (5% – 3.5%)