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16 May, 21:29

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.

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Answers (1)
  1. 16 May, 21:40
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    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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