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Operating data for Martinez Corp. are presented below. 2022 2021 Sales revenue $842,600 $639,100 Cost of goods sold 529,000 410,400 Selling expenses 123,900 76,300 Administrative expenses 73,000 52,400 Income tax expense 37,700 23,100 Net income 79,000 76,900 Prepare a schedule showing a vertical analysis for 2022 and 2021

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Answer:

Martinez Corp.

Schedule showing a vertical analysis for 2022 and 2021:

                                            2022             %            2021         %

Sales revenue                  $842,600       100      $639,100     100

Cost of goods sold            529,000       62.8       410,400    64.2

Gross Profit                         313,600        37.2     228,700     35.8

Selling expenses                123,900        14.7        76,300     11.9

Administrative expenses     73,000        8.7         52,400      8.2

Income before Taxes         189,700        22.5     100,000     15.6

Income tax expense            37,700         4.5         23,100      3.6

Net income                         79,000         9.4       76,900      12

Explanation:

a) Vertical analysis is a method of analyzing financial statements in which each line item is listed as a percentage of a base figure within the statement.  Usually, the base figure used is the Sales Revenue for the Income Statement and Total Assets for the Balance Sheet.

b) The formulas for the Vertical Analysis are as follows:

Vertical Analysis formula = Individual Item / Base Amount *100

i) Vertical Analysis Formula (Income Statement) = Income Statement Item / Total Sales * 100.

ii) Vertical Analysis Formula (Balance Sheet) = Balance Sheet Item / Total Assets (Liabilities) * 100.

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