Assume the average cost of computer equipment fell 20.9 percent between 2016 and 2017. Let?s see whether these changes are reflected in the income statement of Computer Tycoon Inc. for the year ended December 31, 2017.

Required:

1. Conduct a horizontal analysis by calculating the year-over-year changes in each line item, expressed in dollars and in percentages (rounded to one decimal place). How did the change in computer prices compare to the changes in Computer Tycoon?s sales revenues?

2. Conduct a vertical analysis by expressing each line as a percentage of total revenues (rounded to one decimal place). Excluding income tax, interest, and selling, general, and administrative expenses, did Computer Tycoon earn more profit per dollar of sales in 2017 compared to 2016?

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2017 2016 $98,913 $121,761 Sales Revenues Cost of Goods Sold 59,249 71,583 Gross Profit 39,664 50,178 36,934 Selling, General, and Administrative Expenses 36,943 Interest Expense 565 474 Income Before Income Tax Expense 2,156 12,770 1,024 Income Tax Expense 5,540 $ 1,132 $ 7,230 Net Income