A common$-$size income statement for Creek Enterprises' $2021$ operations follows. Using the firm's $2022$ income statement.,

develop the

$2022$

common$-$size income statement and compare it to the $2021$

common$-$size statement. Which areas require further analysis and investigation?

Question content area bottom

Part $1$

Complete the common$-$size income statement for the year ending December $31,$

$2022$ and compare it to the common$-$size income statement for the year ending December

$2021$:

$($Enter as a percent and round to one decimal place.$)$

Creek Enterprises

Common$-$Size Income Statement

for the Years Ended December $31,2021$ and December $2022$

$20222021$

Sales revenue $\%100\mathrm{.}0\%$

Less: Cost of goods sold $65\mathrm{.}8$

Gross profits $\%34\mathrm{.}2\%$

Less: Operating expenses

Selling expense $\%13\mathrm{.}1\%$

General and administrative expenses $6\mathrm{.}4$

Lease expense $0\mathrm{.}3$

Depreciation expense $3\mathrm{.}7$

Total operating expense $23\mathrm{.}5$

Operating profits $\%10\mathrm{.}7\%$

Less: Interest expense $1\mathrm{.}9$

Net profits before taxes $\%8\mathrm{.}8\%$

Less: Taxes $($rate $=21\%)1\mathrm{.}8$

Net profits after taxes $\%7\mathrm{.}0\%$

Less: Preferred stock dividends $0\mathrm{.}2$

Earnings available for common stockholders $\%6\mathrm{.}8\%$

Part $2$

Provide your evaluation based on the common$-$size income statements: $($Select all the choices that apply.$)$

A$.$

Selling expense has increased due to the increase in cost of goods sold.

B$.$

Sales have declined and cost of goods sold has increased as a percentage of sales, probably due to a loss of productive efficiency.

C$.$

The level of interest as a percentage of sales has increased significantly; this suggests that the firm has too much debt.

D$.$

Operating expenses have decreased as a percentage of sales; this appears favorable unless this decline has contributed toward the fall in sales.

E$.$

Further analysis should be directed at the increased cost of goods sold and the high debt level.

Creek Enterprises Income Statement for the Year Ended December $31,2021$

$(\%)$

$(\%)$

Sales revenue

$($$ $35,024,000)$

$100.$

Less: Cost of goods sold

$65\mathrm{.}86$

Gross profits

$34\mathrm{.}2$

Less: Operating expenses

Selling expense

$13\mathrm{.}1$

General and administrative expenses

$6\mathrm{.}4$

Lease expense

$0\mathrm{.}3$

Depreciation expense

$3\mathrm{.}7$

Total operating expense

$23\mathrm{.}5$

Operating profits

$10\mathrm{.}7$

Less: Interest expense

$11\mathrm{.}9$

Net profits before taxes

$8\mathrm{.}8$

Less: Taxes

$($rate equals $21\%$rate$=21\%)$

$1\mathrm{.}8$

Net profits after taxes

$7\mathrm{.}0$

Less: Preferred stock dividends

$0\mathrm{.}2$

Earnings available for common stockholders

$6\mathrm{.}8$

Creek Enterprises Income Statement for the Year Ended December $31,2022$

Sales revenue

$$30,007,000$

Less: Cost of goods sold

$$21,027,000$

Gross profits

$$8,980,000$

Less: Operating expenses

Selling expense

$$3,010,000$

General and administrative expenses

$$1,809,000$

Lease expense

$$178,000$

Depreciation expense

$$998,000$

Total operating expense

$$5,995,000$

Operating profits

$$2,985,000$

Less: Interest expense

$$951,000$

Net profits before taxes

$$2,034,000$

Less: Taxes

$($rate equals $21\%$rate$=21\%)$

$427,140$

Net profits after taxes

$$1,606,860$

Less: Preferred stock dividends

$$95,000$

Earnings available for common stockholders

$$1,511,860$