Question

Horizontal Analysis of Income Statement

For 20Y2, McDade Company reported a decline in net income. At the end of the year, T. Burrows, the president, is presented with the following condensed comparative income statement:

McDade Company Comparative Income Statement For the Years Ended December 31, 20Y2 and 20Y1
	20Y2		20Y1
Sales	$693,095		$579,000
Cost of goods sold	518,000		370,000
Gross profit	$175,095		$209,000
Selling expenses	$73,500		$49,000
Administrative expenses	42,160		31,000
Total operating expenses	$115,660		$80,000
Income from operations	$59,435		$129,000
Other revenue	3,012		2,400
Income before income tax	$62,447		$131,400
Income tax expense	17,500		39,400
Net income	$44,947		$92,000

Required:

1. Prepare a comparative income statement with horizontal analysis for the two-year period, using 20Y1 as the base year. Round percentages to one decimal place. Use the minus sign to indicate a decrease in the "Increase (Decrease)" columns.

McDade Company
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
	20Y2	20Y1	Difference - Amount	Difference - Percent
Sales	$693,095	$579,000	$	%
Cost of goods sold	518,000	370,000		%
Gross profit	$175,095	$209,000	$	%
Selling expenses	$73,500	$49,000	$	%
Administrative expenses	42,160	31,000		%
Total operating expenses	$115,660	$80,000	$	%
Income from operations	$59,435	$129,000	$	%
Other revenue	3,012	2,400		%
Income before income tax	$62,447	$131,400	$	%
Income tax expense	17,500	39,400		%
Net income	$44,947	$92,000	$	%

Answer 1

Ans. 1	McDade Company
	Comparative Income Statement
	For the Years Ended December 31, 20Y2 and 20Y1
		20Y2	20Y1	Difference - Amount	Difference - Percent
	Sales	$693,095	$579,000	$114,095	19.7%
	Cost of goods sold	518,000	370,000	$148,000	40.0%
	Gross profit	$175,095	$209,000	($33,905)	-16.2%
	Selling expenses	$73,500	$49,000	$24,500	50.0%
	Administrative expenses	42,160	31,000	$11,160	36.0%
	Total operating expenses	$115,660	$80,000	$35,660	44.6%
	Income from operations	$59,435	$129,000	($69,565)	-53.9%
	Other revenue	3,012	2,400	$612	25.5%
	Income before income tax	$62,447	$131,400	($68,953)	-52.5%
	Income tax expense	17,500	39,400	($21,900)	-55.6%
	Net income	$44,947	$92,000	($47,053)	-51.1%
	Difference in amount = Particular amount of currentyear 20Y2 - Particular amount of previous year 20Y1
	Difference in percentage = Difference in amount / Particular amount of base (20Y1) or previous year * 100