Sample ProblemsSample Problems

Exercises 23.1 and 23.3Exercises 23.1 and 23.3

Exercise 23.1 and 23.3 both use the following comparative Exercise 23.1 and 23.3 both use the following comparative income statement:income statement:

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Exercise 23.1Exercise 23.1Using the comparative income statement, prepare a vertical Using the comparative income statement, prepare a vertical analysis of all items from sales through gross profit on sales analysis of all items from sales through gross profit on sales for the years 2007 and 2008 for the years 2007 and 2008 Click for sound:Click for sound:

20082008 20072007

SalesSales 1,340,0001,340,000 107.2%107.2% 1,250,0001,250,000 104.2%104.2%

Less sales Less sales returns & returns & allowancesallowances

90,00090,000 7.2%7.2% 50,00050,000 4.2%4.2%

Net salesNet sales 1,250,0001,250,000 100%100% 1,200,0001,200,000 100%100%

COGSCOGS 750,000750,000 60%60% 760,000760,000 63.3%63.3%

Gross profit Gross profit on saleson sales

500,000500,000 40%40% 440,000440,000 36.7%36.7%

Exercise 23.3Exercise 23.3Using the comparative income statement, prepare a horizontal Using the comparative income statement, prepare a horizontal

analysis of all items on the income statement for 2008 and analysis of all items on the income statement for 2008 and 2007.2007.

20082008 20072007 ChangeChange PercentPercent

SalesSales 1,340,0001,340,000 1,250,0001,250,000 90,00090,000 7.2%7.2%

Less ret.&all.Less ret.&all. 90,00090,000 50,00050,000 40,00040,000 80%80%

Net salesNet sales 1,250,0001,250,000 1,200,0001,200,000 50,00050,000 4.2%4.2%

COGSCOGS 750,000750,000 760,000760,000 -10,000-10,000 -1.3%-1.3%

Gross profitGross profit 500,000500,000 440,000440,000 60,00060,000 13.6%13.6%

Selling exp.Selling exp. 145,000145,000 130,000130,000 15,00015,000 11.5%11.5%

General exp.General exp. 185,000185,000 180,000180,000 5,0005,000 2.8%2.8%

Total exp.Total exp. 330,000330,000 310,000310,000 20,00020,000 6.5%6.5%

Net income Net income before taxbefore tax

170,000170,000 130,000130,000 40,00040,000 30.8%30.8%

Income tax Income tax exp.exp.

59,50059,500 45,50045,500 14,00014,000 30.8%30.8%

Net income Net income after income after income taxtax

110,500110,500 84,50084,500 26,00026,000 30.8%30.8%