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	$526,224		$456,000
Cost of goods sold	382,800		290,000
Gross profit	$143,424		$166,000
Selling expenses	$53,200		$38,000
Administrative expenses	30,910		24,000
Total operating expenses	$84,110		$62,000
Income from operations	$59,314		$104,000
Other income	2,421		1,900
Income before income tax	$61,735		$105,900
Income tax expense	17,300		31,800
Net income	$44,435		$74,100

Required:

1. Prepare a comparative income statement with horizontal analysis for the two-year period, using 20Y1 as the base year. Use the minus sign to indicate a decrease in the "Difference" columns. If required, round to one decimal place.

McDade Company
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
	20Y2	20Y1	Difference - Amount	Difference - Percent
Sales	$526,224	$456,000	$	%
Cost of goods sold	382,800	290,000		%
Gross profit	$143,424	$166,000	$	%
Selling expenses	$53,200	$38,000	$	%
Administrative expenses	30,910	24,000		%
Total operating expenses	$84,110	$62,000	$	%
Income from operations	$59,314	$104,000	$	%
Other income	2,421	1,900		%
Income before income tax	$61,735	$105,900	$	%
Income tax expense	17,300	31,800		%
Net income	$44,435	$74,100	$	%

2. Net income has   from 20Y1 to 20Y2. Sales have  ; however, the cost of goods sold has  , causing the gross profit to  .

Answer 1

	McDade Company
	Comparative Income Statement
	For the Years Ended December 31, 20Y2 and 20Y1
		20Y2	20Y1	Difference - Amount	Difference - Percent
	Sales	5,26,224	4,56,000	70,224	15.4%
	Cost of goods sold	3,82,800	2,90,000	92,800	32.0%
	Gross profit	1,43,424	1,66,000	-22,576	-13.6%
	Selling expenses	53,200	38,000	15,200	40.0%
	Administrative expenses	30,910	24,000	6,910	28.8%
	Total operating expenses	84,110	62,000	22,110	35.7%
	Income from operations	59,314	1,04,000	-44,686	-43.0%
	Other income	2,421	1,900	521	27.4%
	Income before income tax	61,735	1,05,900	-44,165	-41.7%
	Income tax expense	17,300	31,800	-14,500	-45.6%
	Net income	44,435	74,100	-29,665	-40.0%