Work through this Income Statement Case Study:

CASE I Analyzing Income Statements for Two Merchandising Companies Shown below are the income statements for two different companies in the furniture business. INCOME STATEMENTS YEAR ENDED DECEMBER 31, 20- Company A Company B Revenue Sales $121 206 $415 072 Cost of Goods Sold 70 704 21 1 686 Gross Profit $ 50 502 $203 386 Operating Expenses Advertising Expense $ 43 072 Bank Charges Expense $ 990 5 765 Building Maintenance Expense 140 3 500 Delivery Expense 6 301 22 685 Depreciation Expense 4 102 12 521 Insurance Expense 509 1 532 Licences Expense 120 435 Utilities Expense 1850 5 775 Miscellaneous Expense 1 19 717 Rent Expense 4 800 12 000 Telephone Expense 275 716 Wages Expense 10 402 40 307 Total Operating Expenses $ 29 608 $149 025 Net Income $ 20 894 $ 54 361 Questions 1. Describe your mental picture of these two companies (large or small, high profile or low profile, etc.) giving specific reasons for your impression. 2. Company B's expenses are much larger than Company A's, yet Company B is able to earn more than twice the net income of Company A. How is this possible? 3. The relationship between the cost price of the goods and the selling price of the goods is crucial in any business. Consider the following analysis for Company A: Sales $121 206 - 100% Cost of Goods Sold $ 70 704 - 58% Company A's goods cost 58% of their selling price. A. Calculate this same percentage figure for Company B. B. If the figure for Company B were 58%, the same as it was for Company A, how much lower would Company B's net income be