Question

Ronaldo Soccer Shop's income statement reports sales of $100,000; cost of goods sold of $46,000, operating expenses of $34,000, interest expense of $15,000, income tax expense of $2,000, and net income of $3,000. If you were to perform a vertical analysis of this income statement, you would divide each of these income statement line items by___________.

Answer 1

The answer is sales($100,000)

Step-by-step explanation:

Each income statement line items would be dividend by sales which is $100,000.

Vertical analysis of financial statement is a method in which each line items in the financial statement is expressed as a percentage of a base figure.

For income statement, all line items in income statement will be expressed as a percentage of sales(revenue)

While for balance sheet, all line items there will be expressed as a percentage of total assets.