Q5SE - Horngren'S Financial And Managerial Accounting

Question

Data for Connor, Inc. and Alto Corp. follow:

Connor Alto

Net Sales Revenue \( 13,000 \) 22,000

Cost of Goods Sold 7,917 15,730

Other Expenses 4,342 5,170

Net Income \( 741 \) 1,100

Requirements

1. Prepare common-size income statements.

2. Which company earns more net income?

3. Which company’s net income is a higher percentage of its net sales revenue?

Step-by-Step Solution

Answer

Answer

Connor’s net Income Increases

Step 1: Calculation of Net Income

Requirement:1

Particulars	Connor	%	Alto	%
Net Sales (a)	13,000	100.00%	22,000	100.00%	(a/a)
Less: Cost of Sales (b)	7,917	60.90%	15,730	71.50%	(b/a)
Gross profit €	5,083	39.10%	6,270	28.50%	(c/a)
Less: Other Expenses (d)	4,342	33.40%	5,170	23.50%	(d/a)
Net Income €	741	5.70%	1,100	5.00%	(e/a)

Step 2: Explanations

Requirement:2

Alto Company earns more net income as compared to Conner of $741.

Requirement:3

The Company Connor i.e., 5.70% has a higher net income Percentage of its net sales revenue as compared to Alto 5.00%