Question

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

	Current Year			Previous Year
Sales	$458,500			$350,000
Cost of goods sold	384,000			300,000
Gross profit	$74,500			$50,000
Selling expenses	$22,990			$19,000
Administrative expenses	20,640			16,000
Total operating expenses	$43,630			$35,000
Income before income tax	$30,870			$15,000
Income tax expenses	12,300			6,000
Net income	$18,570			$9,000

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	$458,500	$350,000	$	%
Cost of goods sold	384,000	300,000		%
Gross profit	$74,500	$50,000	$	%
Selling expenses	$22,990	$19,000	$	%
Administrative expenses	20,640	16,000		%
Total operating expenses	$43,630	$35,000	$	%
Income before income tax	$30,870	$15,000	$	%
Income tax expense	12,300	6,000		%
Net income	$18,570	$9,000	$	%

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

Answer

	Current year amount (A)	Previous year amount (B)	Increase (Decrease) Amount (C = A-B)	Increase (Decrease) Percent (C/B*100)
Sales	$                    458,500	$                      350,000	$                                  108,500	31.0%
Cost of goods sold	$                    384,000	$                      300,000	$                                    84,000	28.0%
Gross profit	$                       74,500	$                        50,000	$                                    24,500	49.0%
Selling expenses	$                       22,990	$                        19,000	$                                      3,990	21.0%
Administrative expenses	$                       20,640	$                        16,000	$                                      4,640	29.0%
Total operating expenses	$                       43,630	$                        35,000	$                                      8,630	24.7%
Income before income tax	$                       30,870	$                        15,000	$                                    15,870	105.8%
Income tax expense	$                       12,300	$                          6,000	$                                      6,300	105.0%
Net income	$                       18,570	$                          9,000	$                                      9,570	106.3%

Answer b

result of an 31% in sales and 28% percentage   in cost of goods sold

at a lower rate than

gross profit to be higher than the

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