For 2016, Indigo Company initiated a sales promotion campaign that included the expenditure of an additional $39,000 for advertising. At the end of the year, Lumi Neer, the president, is presented with the following condensed comparative income statement:

Indigo Company Comparative

Income Statement For the Years Ended December 31, 2016 and 2015

1 2016 2015

2 Sales $810,000.00 $500,000.00

3 Cost of goods sold 283,500.00 185,000.00

4 Gross profit $526,500.00 $315,000.00

5 Selling expenses $162,000.00 $90,000.00

6 Administrative expenses 56,700.00 45,000.00

7 Total operating expenses $218,700.00 $135,000.00

8 Income from operations $307,800.00 $180,000.00

9 Other income 72,900.00 45,000.00

10 Income before income tax $380,700.00 $225,000.00

11 Income tax expense 210,600.00 130,000.00

12 Net income $170,100.00 $95,000.00

Required:

1. Prepare a comparative income statement for the two-year period, presenting an analysis of each item in relationship to sales for each of the years. Round your percentages to one decimal place. Enter all amounts as positive numbers.

2. To the extent the data permit, comment on the significant relationships revealed by the vertical analysis prepared in (1).

1. Prepare an income statement in comparative form, stating each item for both years as a percent of sales. Round your percentages to one decimal place. Enter all amounts as positive numbers.

Indigo Company

Comparative Income Statement

For the Years Ended December 31, 2016 and 2015

1

2016

2016

2015

2015

2

Amount

Percent

Amount

Percent

3

Sales

$810,000.00

$500,000.00

4

Cost of goods sold

283,500.00

185,000.00

5

Gross profit

$526,500.00

$315,000.00

6

Selling expenses

$162,000.00

$90,000.00

7

Administrative expenses

56,700.00

45,000.00

8

Total operating expenses

$218,700.00

$135,000.00

9

Income from operations

$307,800.00

$180,000.00

10

Other income

72,900.00

45,000.00

11

Income before income tax

$380,700.00

$225,000.00

12

Income tax expense

210,600.00

130,000.00

13

Net income

$170,100.00

$95,000.00

Solution

Indigo Company

Comparative Income Statement

For the Years Ended December 31, 2016 and 2015

1

2016

2016

2015

2015

2

Amount

Percent

Amount

Percent

3

Sales

$810,000.00

$500,000.00

4

Cost of goods sold

283,500.00

185,000.00

5

Gross profit

$526,500.00

$315,000.00

6

Selling expenses

$162,000.00

$90,000.00

7

Administrative expenses

56,700.00

45,000.00

8

Total operating expenses

$218,700.00

$135,000.00

9

Income from operations

$307,800.00

$180,000.00

10

Other income

72,900.00

45,000.00

11

Income before income tax

$380,700.00

$225,000.00

12

Income tax expense

210,600.00

130,000.00

13

Net income

$170,100.00

$95,000.00