Question

Horizontal Analysis of the Income Statement

Income statement data for Winthrop Company for two recent years ended December 31, are as follows:

	Current Year			Previous Year
Sales	$701,100			$570,000
Cost of goods sold	605,000			500,000
Gross profit	$96,100			$70,000
Selling expenses	$27,120			$24,000
Administrative expenses	24,200			20,000
Total operating expenses	$51,320			$44,000
Income before income tax	$44,780			$26,000
Income tax expenses	17,900			10,400
Net income	$26,880			$15,600

a. Prepare a comparative income statement with horizontal analysis, indicating the increase (decrease) for the current year when compared with the previous year. If required, round to one decimal place.

Winthrop Company
Comparative Income Statement
For the Years Ended December 31
	Current year Amount	Previous year Amount	Increase (Decrease) Amount	Increase (Decrease) Percent
Sales	$701,100	$570,000	$	%
Cost of goods sold	605,000	500,000		%
Gross profit	$96,100	$70,000	$	%
Selling expenses	$27,120	$24,000	$	%
Administrative expenses	24,200	20,000		%
Total operating expenses	$51,320	$44,000	$	%
Income before income tax	$44,780	$26,000	$	%
Income tax expense	17,900	10,400		%
Net income	$26,880	$15,600	$	%

b. The net income for Winthrop Company increased between years. This increase was the combined result of an   in sales and  percentage   in cost of goods sold. The cost of goods sold increased at a   rate than the increase in sales, thus causing the percentage increase in gross profit to be   than the percentage increase in sales.

Answer 1