Two income statements for Cornea Company follow:
Cornea Company Income Statements For Years Ended December 31 2019 2018 Fees earned . . . . . . . . . . . . . . . . . . . . . $1,640,000 $1,300,000 Operating expenses . . . . . . . . . . . . . 869,200 715,000 Operating income . . . . . . . . . . . . . . . $ 770,800 $ 585,000
a. Prepare a vertical analysis of Cornea Company’s income statements.
b. Does the vertical analysis indicate a favorable or an unfavorable trend?
Answer:
CORNEA COMPANY
Income Statements
For Years Ended December 31
a.
Fees earned $1,640,000 100% $1,300,000 100%
Operating expenses 869,200 53% 715,000 55%
Operating income $ 770,800 47% $ 585,000 45%
b. A favorable trend of decreasing operating expenses and increasing operating
income is indicated.