Chapter 8 Profitability Problem 1. Presented below are the comparative income statements for Simple Things Design Group, Inc.: Simple Things Design Group, Inc. Comparative Income Statements For the Years Ended December 31, 2007 and 2006 2007 2006 Net sales Expenses: $3,470,000$3,350,000 Cost of goods sold$2,082,000$1,992,000 Selling expenses 105,00080,000 General expenses 291,000350,000 Interest expense Income tax expense 265,000 10,000 10,000 60,000 Total expenses 2,753,000 2,492,000 Net income $ 717,000 $ 858,000 Required: a. Prepare a vertical analysis of the income statement showing appropriate percentages for each item listed above. Round percentages to one-tenth percent. b. Why did net income increase faster than net sales? Solution: a. Simple Things Design Group, Inc. Comparative Income Statements For the Years Ended December 31, 2007 and 2006