A comparative income statement is given below for McKenzie Sales, Ltd., of Toronto: McKenzie Sales, Ltd.Comparative Income Statement This YearLast YearSales$7,360,000 $5,593,600 Cost of goods sold 4,760,000 3,511,000 Gross margin 2,600,000 2,082,600 Selling and administrative expenses: Selling expenses 1,384,000 1,081,500 Administrative expenses 709,000 615,000 Total expenses 2,093,000 1,696,500 Net operating income 507,000 386,100 Interest expense 96,000 90,000 Net income before taxes$411,000 $296,100 Members of the company’s board of directors are surprised to see that net income increased by only $114,900 when sales increased by $1,766,400. Required:1. Express each year's income statement in common-size percentages.

Formula: Each individual line item Percentage = ( Each individual line item / Sales ) x 100Common size percentages: Workings: Sales as base Percentage 100 % Each individual line item Percentage = ( Each individual line item / Sales ) x 100 Example: Cost of goods sold = ( 4760000 / 7360000 ) x 100 = 64.67%

Answered: A comparative income statement is given…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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A comparative income statement is given below for McKenzie Sales, Ltd., of Toronto:

McKenzie Sales, Ltd. Comparative Income Statement
	This Year	Last Year
Sales	$	7,360,000	$	5,593,600
Cost of goods sold		4,760,000		3,511,000
Gross margin		2,600,000		2,082,600
Selling and administrative expenses:
Selling expenses		1,384,000		1,081,500
Administrative expenses		709,000		615,000
Total expenses		2,093,000		1,696,500
Net operating income		507,000		386,100
Interest expense		96,000		90,000
Net income before taxes	$	411,000	$	296,100

Members of the company’s board of directors are surprised to see that net income increased by only $114,900 when sales increased by $1,766,400.

Required:

1. Express each year's income statement in common-size percentages.

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