The two-year comparative income statements and a note disclosure for Fleet Shoes, Inc., were as follows:

A fixed asset impairment of $102,000 was recognized in 2007 as the result of abandoning an order management software system. The system project was started in early 2006 and ran into significant delays and performance problems throughout 2007. It was determined that there was no incremental benefit from completing the system. Thus, the accumulated costs associated with the system were written off.
1. Construct a vertical analysis for 2006 and 2007 by determining for each line item its ratio as a percent of sales.
2. Interpret the performance of the company in2007.

Transcribed Image Text:

Fleet Shoes, Inc. Income Statement For the Years Ended December 31, 2006 and 2007 2006 2007 430,000 193,500 510,000 224,400 236,500 285,600 Sales Cost of merchandise sold Gross profit Selling and administrative expenses Loss on fixed asset impairment Income from operations Income tax expense Net income (107,500) (122,400) (102,000) 129,000 61,200 24,480 77,400 36,720 51,600