Preparing Common-Size Income Statements by Using Base PeriodHorizontal Analysis
Hernandez, Inc. provided the following income statements for itsfirst 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 thebase period. (Note: Round answers to the nearest wholepercentage.)
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
%
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