Gavette Company reported the following information for the current year and prior year: What would a vertical analysis report with respect to current year income tax expense?
A)A decrease of $3744
B)A decrease of 124.80% from prior to current year
C)Income tax expense is 1.84% of net sales revenue
D)A decrease of $25,368

Question

Gavette Company reported the following information for the current year and prior year:  What would a vertical analysis report with respect to current year income tax expense?
A)A decrease of $3744 
B)A decrease of 124.80% from prior to current year 
C)Income tax expense is 1.84% of net sales revenue 
D)A decrease of $25,368

Quizplus · Accepted Answer

A vertical analysis report expresses each item on the financial statement as a percentage of a base amount. For income tax expense, the relevant base amount is net sales revenue. The current year income tax expense is $143,625 and the net sales revenue is $7,801,250. Therefore, income tax expense is 1.84% of net sales revenue. The other options are incorrect as they do not reflect the vertical analysis of the financial statement.

Gavette Company Reported the Following Information for the Current Year