Two income statements for Cornea Company are shown below.

Two income statements for Cornea Company are shown below.


Cornea Company
Income Statements
For Years Ended December 31
2014 2013
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:

a.
 CORNEA COMPANY
Income Statements
For Years Ended December 31
2014 2013
Amount Percent Amount Percent
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.