Question

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

	Current Year			Previous Year
Sales	$372,000			$310,000
Cost of goods sold	318,600			270,000
Gross profit	$53,400			$40,000
Selling expenses	$14,300			$13,000
Administrative expenses	12,980			11,000
Total operating expenses	$27,280			$24,000
Income before income tax	$26,120			$16,000
Income tax expenses	10,400			6,400
Net income	$15,720			$9,600

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	$372,000	$310,000	$	%
Cost of goods sold	318,600	270,000		%
Gross profit	$53,400	$40,000	$	%
Selling expenses	$14,300	$13,000	$	%
Administrative expenses	12,980	11,000		%
Total operating expenses	$27,280	$24,000	$	%
Income before income tax	$26,120	$16,000	$	%
Income tax expense	10,400	6,400		%
Net income	$15,720	$9,600	$	%

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.

Answer 1

Requirement a

Winthrop Company
Comparative Income Statement
For the Years Ended December 31
	Current	Previous	Increase	Increase
	year	year	(Decrease)	(Decrease)
	Amount	Amount	Amount	Percent
Sales	$ 3,72,000.00	$ 3,10,000.00	62,000.00	20.0%
Cost of goods sold	$ 3,18,600.00	$ 2,70,000.00	48,600.00	18.0%
Gross profit	$    53,400.00	$   40,000.00	13,400.00	33.5%
Selling expenses	$    14,300.00	$   13,000.00	1,300.00	10.0%
Administrative expenses	$    12,980.00	$   11,000.00	1,980.00	18.0%
Total operating expenses	$    27,280.00	$   24,000.00	3,280.00	13.7%
Income before income tax	$    26,120.00	$   16,000.00	10,120.00	63.3%
Income tax expense	$    10,400.00	$     6,400.00	4,000.00	62.5%
Net income	$    15,720.00	$     9,600.00	6,120.00	63.8%

Requirement b

The net income for Winthrop Company increased between years. This increase was the combined result of an Increase in sales and percentage in cost of goods sold. The cost of goods sold increased at a Lower rate than the increase in sales, thus causing the percentage increase in gross profit to be Higher than the percentage increase in sales.