Sports Emporium has two operating segments: sporting goods and sports apparel. The income statement for each operating segment is presented below. Required: 1. Complete the "%" columns to be used in a vertical analysis of Sports Emporium's two operating segments. Express each amount as a percentage of sales. (Round your answers to 1 decimal place.) 2. Use vertical analysis to compare the profitability of the two operating segments. Which segment has a higher net income as a percentage of net sales? Sporting Goods Sports Apparel rev: 12_07_2016_QC_CS-

Please refer to Explanation

Explanation:

1. When using Vertical Analysis, every item in the Income statement is depicted as a percentage of sales.

Sporting Goods Vertical Analysis

Net Sales = 1,800,00/1,800,000 = 100%

Cost of Goods Sold = 1,040,000/1,800,000 = 57.7%

Gross Profit = 760,000 /1,800,000 = 42.2%

Operating Expenses = 450,000 /1,800,000 = 25%

Operating Income = 310,000/1,800,000 = 17.2%

Other Income (Expense) =  20,000 /1,800,000 = 1.1%

Income before tax = 330,000 /1,800,000 = 18.3%

Income tax Expense = 80,000/1,800,000 = 4.4%

Net Income = 250,000/1,800,000 = 13.9%

Sports Apparel Vertical Analysis

Net Sales = 970,000/970,000 = 100%

Cost of Goods Sold = 440,000/970,000 = 45.4%

Gross Profit = 530,000/970,000 = 54.6%

Operating Expenses = 340,000/970,000 = 35.0%

Operating Income = 190,000/970,000 = 19.6%

Other Income (Expense) = 15,000/970,000 = 1.54%

Income before tax = 175,000/970,000 = 18.0%

Income tax Expense = 70,000/970,000 = 7.2%

Net Income = 105,000/970,000 = 10.8%

2. Comparison using Vertical Analysis

I have attached the income statement required for the question.

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