Question

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

   	Current Year			Previous Year
   Sales	$799,100			$610,000
   Cost of goods sold	665,600			520,000
   Gross profit	$133,500			$90,000
   Selling expenses	$39,930			$33,000
   Administrative expenses	36,120			28,000
   Total operating expenses	$76,050			$61,000
   Income before income tax	$57,450			$29,000
   Income tax expenses	23,000			11,600
   Net income	$34,450			$17,400

   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	$799,100	$610,000	$	%
   Cost of goods sold	665,600	520,000		%
   Gross profit	$133,500	$90,000	$	%
   Selling expenses	$39,930	$33,000	$	%
   Administrative expenses	36,120	28,000		%
   Total operating expenses	$76,050	$61,000	$	%
   Income before income tax	$57,450	$29,000	$	%
   Income tax expense	23,000	11,600		%
   Net income	$34,450	$17,400	$	%

   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

(a)

PARTICULARS	CURRENT YEAR AMOUNT	PREVIOUS YEAR AMOUNT	Increase ( Decrease) Amount	Increase (Decrease) %
Sales	$ 799100	$ 610000	$ 189100	31%
Cost of goods sold	$ 665600	$ 520000	$ 145600	28%
Gross profit	$ 133500	$ 90000	$ 43500	48.33%
Selling expenses	$39930	$ 33000	$ 6930	21%
Administrative expenses	$ 36120	$ 28000	$ 8120	29%
Total operating expenses	$76050	$ 61000	$ 15050	24.67%
Income before income tax	$ 57450	$ 29000	$ 28450.	98.10%
Income tax expense	$23000	$11600	$ 11400	98.27%
Net income	$ 34450	$ 17400	$ 17050	97.99 %

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