Question

Horizontal Analysis of the Income Statement

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

	Current Year			Previous Year
Sales	$486,400			$380,000
Cost of goods sold	415,800			330,000
Gross profit	$70,600			$50,000
Selling expenses	$21,240			$18,000
Administrative expenses	18,900			15,000
Total operating expenses	$40,140			$33,000
Income before income tax	$30,460			$17,000
Income tax expenses	12,200			6,800
Net income	$18,260			$10,200

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.

Boone Company
Comparative Income Statement
For the Years Ended December 31
	Current year Amount	Previous year Amount	Increase (Decrease) Amount	Increase (Decrease) Percent
Sales	$486,400	$380,000	$	%
Cost of goods sold	415,800	330,000		%
Gross profit	$70,600	$50,000	$	%
Selling expenses	21,240	18,000		%
Administrative expenses	18,900	15,000		%
Total operating expenses	$40,140	$33,000	$	%
Income before income tax	$30,460	$17,000	$	%
Income tax expense	12,200	6,800		%
Net income	$18,260	$10,200	$	%

b. The net income for Boone Company increased by 79% between years. This increase was the combined result of an   in sales of 28% 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

Boone Company
Comparitive Income statement
For the year's ended December 31
	Current year Amount(a)	Previous year Amount (b)	Increase / (Decrease) Amount (c)	Increase / (Decrease) percentage
			(a) - (b)	[(c) / (b)] X 100
Sales	$       4,86,400	$       3,80,000	$     1,06,400	28.0%
Cost of goods sold	$       4,15,800	$       3,30,000	$        85,800	26.0%
Gross Profit	$           70,600	$           50,000	$        20,600	41.2%
Selling Expenses	$           21,240	$           18,000	$           3,240	18.0%
Administrative Expenses	$           18,900	$           15,000	$           3,900	26.0%
Total operating expenses	$           40,140	$           33,000	$           7,140	21.6%
Income before income tax	$           30,460	$           17,000	$        13,460	79.2%
Income tax expense	$           12,200	$             6,800	$           5,400	79.4%
Net Income	$           18,260	$           10,200	$           8,060	79.0%