Question

Common-size and trend percents for Rustynail Company's sales, cost of goods sold, and expenses follow. Common-Size Percents Trend Percents Current Yr 1 Yr Ago 2 Yrs Ago Current Yr 1 Yr Ago 2 Yrs Ago Sales 100.0 % 100.0 % 100.0 % 104.5 % 103.3 % 100.0 % Cost of goods sold 63.7 61.5 57.4 116.0 110.7 100.0 Total expenses 14.3 13.8 14.1 106.1 101.1 100.0 Determine the net income for the following years. Did the net income increase, decrease, or remain unchanged in this three-year period?

Answer 1

Rustynail Company

1. The net income for the following years:

Common-Size Percents and Trend Percents

Current 1 Yr 2 Yrs Current 1 Yr 2 Yrs

Yr Ago Ago Yr Ago Ago

Sales 100.0 % 100.0 % 100.0 % 104.5 % 103.3 % 100.0 %

Cost of goods sold 63.7 61.5 57.4 116.0 110.7 100.0

Total expenses 14.3 13.8 14.1 106.1 101.1 100.0

Net Income 22.0 24.7 28.5 77.2 86.7 100.0

2. The net income decrease in this three-year period.

Step-by-step explanation:

a) Data and Calculations:

Common-Size Percents and Trend Percents

Current 1 Yr 2 Yrs Current 1 Yr 2 Yrs

Yr Ago Ago Yr Ago Ago

Sales 100.0 % 100.0 % 100.0 % 104.5 % 103.3 % 100.0 %

Cost of goods sold 63.7 61.5 57.4 116.0 110.7 100.0

Total expenses 14.3 13.8 14.1 106.1 101.1 100.0

Net Income 22.0 24.7 28.5 77.2 86.7 100.0

b) The net incomes for the common-size percents are obtained by deducting the cost of goods sold and the total expenses from sales. The net incomes for the trend percents are obtained by stating the base year as 100% and then calculating the other years. This takes the form of taking the net income for the analysis year/base year's and then multiplying by 100.