Preparing Common-Size Income Statements by Using Base Period Horizontal Analysis

Hernandez, Inc. provided the following income statements for its first three years of operation:

	Year 1		Year 2		Year 3
Net sales	$1,000,000		$1,100,000		$1,250,000
Less: Cost of goods sold	(700,000)		(750,000)		(810,000)
Gross margin	$ 300,000		$ 350,000		$ 440,000
Less:
Operating expenses	(200,000)		(235,000)		(310,000)
Income taxes	(40,000)		(49,000)		(52,000)
Net income	$ 60,000		$ 66,000		$ 78,000

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Prepare common-size income statements by using year 1 as the base period. (Note: Round answers to the nearest whole percentage.)

Hernandez, Inc.
Income Statements
Years of Operation
		Year 1 Dollars		Year 1 Percent		Year 2 Dollars		Year 2 Percent		Year 3 Dollars		Year 3 Percent
Net sales		$1,000,000		%		$1,100,000		%		$1,250,000		%
Less: Cost of goods sold		(700,000)				(750,000)				(810,000)
Gross margin		$ 300,000		%		$ 350,000		%		$ 440,000		%
Less:
Operating expenses		(200,000)				(235,000)				(310,000)
Income taxes		(40,000)				(49,000)				(52,000)
Net income		$ 60,000		%		$ 66,000		%		$ 78,000		%