Comparative income statements for Long Pond Company for 2008 and 2007 follow.
|
|
2008
|
2007
|
|
Sales
|
$800,000
|
$450,000
|
|
Cost of goods sold
|
510,000
|
240,000
|
|
Gross profit
|
$290,000
|
$210,000
|
|
Selling and general expenses
|
80,000
|
60,000
|
|
Operating income
|
$210,000
|
$150,000
|
|
Interest expense
|
40,000
|
30,000
|
|
Income before income taxes
|
$170,000
|
$120,000
|
|
Income taxes
|
51,000
|
36,000
|
|
Net income
|
$119,000
|
$ 84,000
|
1. Prepare common-size income statements for Long Pond Company for 2008 and 2007.
2. Return on sales for Long Pond is lower in 2008 than in 2007. What expense or expenses are causing this lower profitability?