Question

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

Question not attempted.

1		Current Year	Previous Year
2	Sales	$1,836,800.00	$1,640,000.00
3	Cost of goods sold	1,556,442.00	1,402,200.00
4	Gross profit	$280,358.00	$237,800.00
5	Selling expenses	$79,800.00	$70,000.00
6	Administrative expenses	48,840.00	44,000.00
7	Total operating expenses	$128,640.00	$114,000.00
8	Income before income tax	$151,718.00	$123,800.00
9	Income tax expense	12,300.00	8,200.00
10	Net income	$139,418.00	$115,600.00

A.

Prepare a comparative income statement with horizontal analysis, indicating the increase (decrease) for the current year when compared with the previous year. Round percentages to one decimal place.

B.

What conclusions can be drawn from the horizontal analysis? Round the answers to one decimal place. Prepare a comparative income statement with horizontal analysis, indicating the increase (decrease) for the current year when compared with the previous year. Round percentages to one decimal place. Winthrop Company Comparative Income Statement For the Years Ended December 31 1 Increase (Decrease) Increase (Decrease) 2 Current Year Previous Year Amount Percent 3 Sales $1,836,800.00 $1,640,000.00 ? ? 4 Cost of goods sold 1,556,442.00 1,402,200.00 ? ? 5 Gross profit $280,358.00 $237,800.00 ? 6 Selling expenses $79,800.00 $70,000.00 ? ? 7 Administrative expenses 48,840.00 44,000.00 ? ? 8 Total operating expenses $128,640.00 $114,000.00 ? 9 Income before income tax $151,718.00 $123,800.00 ? 10 Income tax expense 12,300.00 8,200.00 ? ? 11 Net income $139,418.00 $115,600.00 ? Solution Winthrop Company Comparative Income Statement For the Years Ended December 31 1 Increase (Decrease) Increase (Decrease) 2 Current Year Previous Year Amount Percent 3 Sales $1,836,800.00 $1,640,000.00 4 Cost of goods sold 1,556,442.00 1,402,200.00 5 Gross profit $280,358.00 $237,800.00 6 Selling expenses $79,800.00 $70,000.00 7 Administrative expenses 48,840.00 44,000.00 8 Total operating expenses $128,640.00 $114,000.00 9 Income before income tax $151,718.00 $123,800.00 10 Income tax expense 12,300.00 8,200.00 11 Net income $139,418.00 $115,600.00

What conclusions can be drawn from the horizontal analysis? Round the answers to one decimal place.

The net income for Winthrop Company increased by approximately ____% this year. This increase was the combined result of an increase in sales of ____% and lower percentage increase in cost of goods sold.

The cost of goods sold increased at a slower rate than the increase in sales, thus causing the percentage increase in gross profit to be greater than the percentage increase in sales.

Answer 1

1

	Current Year	Previous Year	Increase (Decrease)	Increase (Decrease)
			Amount	%
Sales	1836800	1640000	196800	12.00%
Cost of goods sold	1556442	1402200	154242	11.00%
Gross profit	280358	237800	42558	17.90%
Selling expenses	79800	70000	9800	14.00%
Administrative expenses	48840	44000	4840	11.00%
Total operating expenses	128640	114000	14640	12.84%
Income before income tax	151718	123800	27918	22.55%
Income tax expense	12300	8200	4100	50.00%
Net income	139418	115600	23818	20.60%

2

The net income for Winthrop Company increased by approximately 20.60% this year. This increase was the combined result of an increase in sales of _12% and lower percentage increase in cost of goods sold.

The cost of goods sold increased at a slower rate than the increase in sales, thus causing the percentage increase in gross profit to be greater than the percentage increase in sales.