In: Accounting
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 | $496,100 | $410,000 | |||
Cost of goods sold | 413,000 | 350,000 | |||
Gross profit | $83,100 | $60,000 | |||
Selling expenses | $23,310 | $21,000 | |||
Administrative expenses | 20,230 | 17,000 | |||
Total operating expenses | $43,540 | $38,000 | |||
Income before income tax | $39,560 | $22,000 | |||
Income tax expenses | 15,800 | 8,800 | |||
Net income | $23,760 | $13,200 |
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.
Winthrop Company | ||||
Comparative Income Statement | ||||
For the Years Ended December 31 | ||||
Current year Amount |
Previous year Amount |
Increase (Decrease) Amount |
Increase (Decrease) Percent |
|
Sales | $496,100 | $410,000 | $ | % |
Cost of goods sold | 413,000 | 350,000 | % | |
Gross profit | $83,100 | $60,000 | $ | % |
Selling expenses | $23,310 | $21,000 | $ | % |
Administrative expenses | 20,230 | 17,000 | % | |
Total operating expenses | $43,540 | $38,000 | $ | % |
Income before income tax | $39,560 | $22,000 | $ | % |
Income tax expense | 15,800 | 8,800 | % | |
Net income | $23,760 | $13,200 | $ | % |
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.
a.
Winthrop Company | ||||
Comparative Income Statement | ||||
For the Years Ended December 31 | ||||
Current year Amount |
Previous year Amount |
Increase (Decrease) Amount |
Increase (Decrease) Percent |
|
Sales | $496,100 | $410,000 | $86,100 | 21% |
Cost of goods sold | 413,000 | 350,000 | $63,000 | 18% |
Gross profit | $83,100 | $60,000 | $23,100 | 38.5% |
Selling expenses | $23,310 | $21,000 | $2,310 | 11% |
Administrative expenses | 20,230 | 17,000 | $3,230 | 19% |
Total operating expenses | $43,540 | $38,000 | $5,540 | 14.6% |
Income before income tax | $39,560 | $22,000 | $17,560 | 79.8% |
Income tax expense | 15,800 | 8,800 | $7,000 | 79.5% |
Net income | $23,760 | $13,200 | $10,560 | 80% |
b)
The net income for Winthrop Company increased between years. This increase was the combined result of an increase in sales and increase in cost of goods sold. The cost of goods sold increased at a rate lower than the increase in sales, thus causing the percentage increase in gross profit to be higher than the percentage increase in sales.