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	$649,636		$589,000
Cost of goods sold	451,400		370,000
Gross profit	$198,236		$219,000
Selling expenses	$63,750		$50,000
Administrative expenses	37,140		31,000
Total operating expenses	$100,890		$81,000
Income from operations	$97,346		$138,000
Other revenue	3,110		2,500
Income before income tax	$100,456		$140,500
Income tax expense	28,100		42,200
Net income	$72,356		$98,300

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	$649,636	$589,000	$	%
Cost of goods sold	451,400	370,000		%
Gross profit	$198,236	$219,000	$	%
Selling expenses	$63,750	$50,000	$	%
Administrative expenses	37,140	31,000		%
Total operating expenses	$100,890	$81,000	$	%
Income from operations	$97,346	$138,000	$	%
Other revenue	3,110	2,500		%
Income before income tax	$100,456	$140,500	$	%
Income tax expense	28,100	42,200		%
Net income	$72,356	$98,300	$	%

.

Answer 1

• Requirement

McDade Company
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
	20Y2	20Y1	Difference - Amount	Difference - Percent
	[A]	[B]	[C = A – B]	[D = (C/B) x 100]
Sales	$649,636	$589,000	$60,636	10.3%
Cost of goods sold	$451,400	$370,000	$81,400	22.0%
Gross profit	$198,236	$219,000	($20,764)	-9.5%
Selling expenses	$63,750	$50,000	$13,750	27.5%
Administrative expenses	$37,140	$31,000	$6,140	19.8%
Total operating expenses	$100,890	$81,000	$19,890	24.6%
Income from operations	$97,346	$138,000	($40,654)	-29.5%
Other revenue	$3,110	$2,500	$610	24.4%
Income before income tax	$100,456	$140,500	($40,044)	-28.5%
Income tax expense	$28,100	$42,200	($14,100)	-33.4%
Net income	$72,356	$98,300	($25,944)	-26.4%