Question

Revenue and expense data for Innovation Quarter Inc. for two recent years are as follows: The reporting statement of revenue and expense data is shown. A table with three columns is shown. There is no heading in the first column; the second column heading in the current year; the third column heading is the previous year. The headings, Current Year and Previous Year, are set in bold. The first line (below the heading) shows Sales is $ 4,000,000 and $ 3,600,000; the second line shows Cost of goods sold is 2,280,000 and 1,872,000; the third line shows Selling expenses is 600,000 and 648,000; the fourth line shows Administrative expenses is 520,000 and 360,000;the fifth line shows Income tax expense is 240,000 and 216,000. Prepare an income statement in comparative form, stating each item for both years as a percent of sales. Round to the nearest whole percentage. Answer Check Figure: Current year net income: $360,000; 9% of sales Pencil Comment on the significant changes disclosed by the comparative income statement.

Answer 1

Innovation Quarter Inc.

Income Statement

For the Years Ended

Current Year ($) Previous Year ($)

Sales 4,000,000 100% 3,600,000 100%

Cost of goods sold 2,280,000 57% 1,872,000 52%

Gross profit 1,720,000 43% 1,728,000 48%

Expenses:

Selling expenses 600,000 15% 648,000 18%

Administrative expenses 520,000 13% 360,000 10%

Total expenses 1,120,000 28% 1,008,000 28%

Income from operations 600,000 15% 720,000 20%

Income tax expense 240,000 6% 216,000 6%

Net income 360,000 9% 504,000 14%

Step-by-step explanation:

Current Year Previous Year

Sales $ 4,000,000 $ 3,600,000

Cost of goods sold $ 2,280,000 $ 1,872,000

Selling expenses $ 600,000 $ 648,000

Administrative expenses $ 520,000 $ 360,000

Income tax expense $ 240,000 $ 216,000