Question

In: Accounting

Horizontal Analysis of the Income Statement Income statement data for Winthrop Company for two recent years...

Horizontal Analysis of the Income Statement

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

    Current Year     Previous Year
Sales $864,000 $720,000
Cost of goods sold 731,600 620,000
Gross profit $132,400 $100,000
Selling expenses $36,300 $33,000
Administrative expenses 33,040 28,000
Total operating expenses $69,340 $61,000
Income before income tax $63,060 $39,000
Income tax expenses 25,200 15,600
Net income $37,860 $23,400

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 $864,000 $720,000 $ %
Cost of goods sold 731,600 620,000 %
Gross profit $132,400 $100,000 $ %
Selling expenses $36,300 $33,000 $ %
Administrative expenses 33,040 28,000 %
Total operating expenses $69,340 $61,000 $ %
Income before income tax $63,060 $39,000 $ %
Income tax expense 25,200 15,600 %
Net income $37,860 $23,400 $ %

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.

Solutions

Expert Solution

Horizondal Analysis of Income Statement were as follows

Change in Amount = Amount in Current Year - Amount in Previous Year

Changes in Percentage = Change in Amount / Amount in Previous Year x 100%

Winthrop Company
Comparative Income Statement
For the year Ended December 31
Current Year Previous Year Increase (Decrease) Amount Increase (Decrease) Percentage
Sales             864,000             720,000                   144,000 20.0%
Cost Of Goods Sold             731,600             620,000                   111,600 18.0%
Gross Profit           132,400           100,000                   32,400 32.4%
Selling Expense               36,300               33,000                       3,300 10.0%
Administrative Expense               33,040               28,000                       5,040 18.0%
Total Operating Expense               69,340               61,000                       8,340 13.7%
Income Before Income Tax             63,060             39,000                   24,060 61.7%
Income Tax Expense               25,200               15,600                       9,600 61.5%
Net Income             37,860             23,400                   14,460 61.8%

B) The Net income for winthrop company increased between years. This increase was the combined result of an Increase in sales and percent Increase in Cost of Goods sold. Thus cost of goods sold increased at 18% a less rate than increase in sales, thus causing percentage incease in Gross Profit to be more than the percetage increase in sales.


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