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Preparing Income Statements by Using Net Sales as the Base: Vertical Analysislt Jasmine Company provided the following income statements for its first 3 years of operation:
Year 1 Year 2 Year 3
Net sales $5,000,000 $4,500,000 $4,000,000
Less: Cost of goods sold (3,000,000) (3,250,000) (3,600,000)
Gross margin $2,000,000 $1,250,000 $400,000
Less: Operating expenses (1,420,000) (800,000) (165,000)
Income taxes (232,000) (180,000) (134,000)
Net income $348,000 $270,000 $101,000
Required: Prepare common-size income statements by using net sales as the base. Round answers to the nearest whole percentage.

Respuesta :

Answer and Explanation:

The preparation of common-size income statements by using net sales as the base is shown below:-

                               Jasmine company

                        Common-size Income Statement

                           Year 1         Year 2        Year 3

                      $             %             $             %            $                %

Sales       5,000,000   100    4,500,000  100     4,000,000     100    

Cost of Goods

Sold      (3,000,000)    60     (3,250,000)   72.22  (3,600,000) 90

Gross

Profit     2,000,000      40      1,250,000     27.78     400,000    10

Operating

Expenses(1,420,000)   28.4    (800,000)    17.78      (165,000)    4.12

Income

Taxes       (232,000)    4.64       (180,000)     4          (134,000)     3.35

Net Income $348,000   6.96    $270,000    6          $101,000      2.53

Working Note:-

For Year 1

Sales = 5,000,000 ÷ 5,000,000 × 100

Cost of Goods Sold = 3,000,000 ÷ 5,000,000 × 100

Gross Profit = 2000,000 ÷ 5,000,000 × 100

Operating Expenses = 1,420,000 ÷ 5,000,000 × 100

Income Taxes = 232,000 ÷ 5,000,000 × 100

Net Income =  348,000 ÷ 5,000,000 × 100

For Year 2

Sales = 4,500,000 ÷ 4,500,000 × 100

Cost of Goods Sold = 3,250,000 ÷ 4,500,000 × 100

Gross Profit = 1,250,000 ÷ 4,500,000 × 100

Operating Expenses = 800,000 ÷ 4,500,000 × 100

Income Taxes = 180,000 ÷ 4,500,000 × 100

Net Income =270,000 ÷ 4,500,000 × 100

For Year 3

Sales = 4,000,000 ÷ 4,000,000 × 100

Cost of Goods Sold = 3,600,000 ÷ 4,000,000 × 100

Gross Profit = 400,000 ÷ 4,000,000 × 100

Operating Expenses = 165,000 ÷ 4,000,000 × 100

Income Taxes = 134,000 ÷ 4,000,000 × 100

Net Income = 101,000 ÷ 4,000,000 × 100

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