Problem: Module $4$ Textbook Problem $1$

Learning Objective: $4-1$ Differentiate between horizontal and vertical analysis

Income statements for Solomon Company for Year $3$ and Year $4$ follow:

SOLOMON COMPANY

Income Statements

Year $4$ Year $3$

Sales $ $200,100$ $ $180,100$

Cost of goods sold $142,100120,100$

Selling expenses $21,50019,500$

Administrative expenses $12,70014,700$

Interest expense $3,2005,200$

Total expenses $ $179,500$ $ $159,500$

Income before taxes $20,60020,600$

Income taxes expense $6,0003,600$

Net income $ $14,600$ $ $17,000$

Required

a$.$ Perform a horizontal analysis, showing the percentage change in each income statement component between Year $3$ and Year $4.$

b$.$ Perform a vertical analysis, showing each income statement component as a percentage of sales for each year.