Homework SourseYear 2 Year 1 Sales 519000 419000 Cost of goods sold 33000
Year 2
Year 1
Sales
$
519,000
$
419,000
Cost of goods sold
330,000
268,000
Gross profit
$
189,000
$
151,000
Operating expenses
130,000
116,000
Net income
$
59,000
$
35,000
a. Prepare common size income statements for Price Company, a sole proprietorship, for the two years shown as above by converting the dollar amounts into percentages. For each year, sales will appear as 100 percent and other items will be expressed as a percentage of sales. (Income taxes are not involved as the business is not incorporated.)
b. State whether the changes from year 1 to year 2 are favorable or unfavorable.
| | Year 2 | Year 1 | |||||
| Sales | $ | 519,000 | $ | 419,000 | |||
| Cost of goods sold | 330,000 | 268,000 | |||||
| Gross profit | $ | 189,000 | $ | 151,000 | |||
| Operating expenses | 130,000 | 116,000 | |||||
| Net income | $ | 59,000 | $ | 35,000 | |||
Solution
a) Prepare common size income statement :
b) Changes from year 1 to year 2 is favorable because percentage of net income is higher in year 2
| Year 2 amount | Year 2 percentage | Year 1 AMount | Year 1 percentage | |
| Sales | 519000 | 100% | 419000 | 100% |
| Cost of goods sold | 330000 | 63.6% | 268000 | 64.0% |
| Gross profit | 189000 | 36.4% | 151000 | 36.0% |
| Operating expenses | 130000 | 25.0% | 116000 | 27.7% |
| Net income | 59000 | 11.4% | 35000 | 8.4% |
