Important modification of comparative income statement

Question

Revenue and expense data for ABC firm are as follows:

                                             2006           2005
Administrative expenses       $ 37,000     $ 20,000
Cost of goods sold               400,000       320,000
Income tax                            40,000         32,000
Net sales                             900,000       700,000
Selling expenses                  190,000        110,000

(a) Create a comparative income statement, with vertical analysis, stating each item for both 2006 and 2005 as a percent of sales.

(b) Explain the important modification disclosed by a comparative income statement.