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	$501,094		$418,000
Cost of goods sold	364,000		260,000
Gross profit	$137,094		$158,000
Selling expenses	$52,500		$35,000
Administrative expenses	29,920		22,000
Total operating expenses	$82,420		$57,000
Income from operations	$54,674		$101,000
Other income	2,201		1,800
Income before income tax	$56,875		$102,800
Income tax expense	15,900		30,800
Net income	$40,975		$72,000

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	$501,094	$418,000	$	%
Cost of goods sold	364,000	260,000		%
Gross profit	$137,094	$158,000	$	%
Selling expenses	$52,500	$35,000	$	%
Administrative expenses	29,920	22,000		%
Total operating expenses	$82,420	$57,000	$	%
Income from operations	$54,674	$101,000	$	%
Other income	2,201	1,800		%
Income before income tax	$56,875	$102,800	$	%
Income tax expense	15,900	30,800		%
Net income	$40,975	$72,000	$	%

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
Years ended Dec 31,20Y2 and 20Y1
Horizontal Analysis
			Increase/(Decrease) in 20Y2
	20Y2	20Y1	Amount	Percentage
Sales	$5,01,094	$4,18,000	$83,094	19.9%
Cost of goods sold	$3,64,000	$2,60,000	$1,04,000	40.0%
Gross Profit	$1,37,094	$1,58,000	-$20,906	-13.2%
Selling expenses	$52,500	$35,000	$17,500	50.0%
Administrative expenses	$29,920	$22,000	$7,920	36.0%
Total Operating expneses	$82,420	$57,000	$25,420	44.6%
Income from operations	$54,674	$1,01,000	-$46,326	-45.9%
Other Income	$2,201	$1,800	$401	22.3%
Income before income tax	$56,875	$1,02,800	-$45,925	-44.7%
Income tax expense	$15,900	$30,800	-$14,900	-48.4%
Net Income	$40,975	$72,000	-$31,025	-43.1%
Net Income has Decreased from 20Y1 to 20Y2. Sales have Increased; However the cost of goods sold has Increased, causing the gross profit to Decrease