Explanation Common-size income statement is the statement used to compare the income statement of companies of different size. It is the vertical analysis of the company. It reports the percentage of vertical analysis taking net sales as the base figure of income statement. So, net sales have the base as 100%. Firm MD Comparative common-size income statement For the year ended December 31,2014 2014 Percentages 2013 Percentages Sales revenues $567,276 100% $492,000 100% Less: Cost of goods sold $266,805 47.03%(9) $247,500 37.29%(1) Gross profit $300,471 52.96%(10) $244,500 49.69%(2) Less: Operating expense $148,750 26.22%(11) $140,000 28.45%(3) Operating income $151,721 26.74%(12) $104,500 21.23%(4) Less: Interest expense $9,905 1.74%(13) $4,070 0.82%(5) Income before income taxes $141,816 24.99%(14) $100,430 20.41%(6) Less: Income tax expense $21,235 3.74%(15) $18,430 3.74%(7) Net income $120,581 27.66%(16) $82,000 16.66%(8) Working note: Calculation of percentage of cost of goods sold for the year 2013 Percentage for year 2013 = Cost of goods sold Sales revenues × 100 = $ 247 , 500 $ 492 , 000 × 100 = 0.5030 × 100 = 37.29 % (1) Calculation of percentage of gross profit for the year 2013 Percentage for the year 2013 = Gross profit Sales revenues × 100 = $ 244 , 500 $ 492 , 000 × 100 = 0.4969 × 100 = 49.69 % (2) Calculation of percentage of operating expenses for the year 2013 Percentage for year 2013 = Operating expenses Sales revenues × 100 = $ 140 , 000 $ 492 , 000 × 100 = 0.2845 × 100 = 28.45 % (3) Calculation of percentage of operating income for the year 2013 Percentage for year 2013 = Operating income Sales revenues × 100 = $ 104 , 500 $ 492 , 000 × 100 = 0.2123 × 100 = 21.23 % (4) Calculation of percentage of interest expense for the year 2013 Percentage for year 2013 = Interest expense Sales revenues × 100 = $ 4 , 070 $ 492 , 000 × 100 = 0.0082 × 100 = 0.82 % (5) Calculation of percentage of income before income taxes for the year 2013 Percentage for year 2013 = Income before income taxes Sales revenues × 100 = $ 100 , 430 $ 492 , 000 × 100 = 0.2041 × 100 = 20.41 % (6) Calculation of percentage of income tax expense for the year 2013 Percentage for year 2013 = Income tax expense Sales revenues × 100 = $ 18 , 430 $ 492 , 000 × 100 = 0.0374 × 100 = 3.74 % (7) Calculation of percentage of net income for the year 2013 Percentage for year 2013 = Net income Sales revenues × 100 = $ 82 , 000 $ 492 , 000 × 100 = 0

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Chapter 14, Problem 14.15AE

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Managerial Accounting, Student Value Edition Plus NEW MyLab Accounting with Pearson eText -- Access Card Package (4th Edition)

Ch. 14 - Prob. 1QC Ch. 14 - 2. (Learning Objective 1) A trend study compares...Ch. 14 - Prob. 3QC Ch. 14 - Prob. 4QC Ch. 14 - Prob. 5QC Ch. 14 - Prob. 6QC Ch. 14 - Prob. 7QC Ch. 14 - Prob. 8QC Ch. 14 - Prob. 9QC Ch. 14 - Prob. 10QC

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