Two income statements for PS Enterprises are shown below:

Prepare a vertical analysis of PS Enterprises' income statements.Has operating income increased or decreased as a percentage of revenue?
A)Yes,increased by 5%
B)Yes,increased by 111%
C)No,decreased by 5%.
D)None are correct.

Question

Two income statements for PS Enterprises are shown below:

Prepare a vertical analysis of PS Enterprises' income statements.Has operating income increased or decreased as a percentage of revenue?
A)Yes,increased by 5% 
B)Yes,increased by 111% 
C)No,decreased by 5%. 
D)None are correct.

Quizplus · Accepted Answer

To prepare a vertical analysis of PS Enterprises' income statements, each item on the income statements is expressed as a percentage of sales. In the 20X2 income statement, operating income is $370,000 and revenue is $6,800,000, which results in an operating income percentage of 5.44%. In the 20X1 income statement, operating income is $390,000 and revenue is $8,000,000, which results in an operating income percentage of 4.88%. Therefore, operating income has decreased as a percentage of revenue by approximately 5%. Therefore, the correct answer is C.

Two Income Statements for PS Enterprises Are Shown Below