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In: Accounting

Horizontal Analysis of the Income Statement Income statement data for Boone Company for two recent years...

Horizontal Analysis of the Income Statement

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

    Current Year     Previous Year
Sales $546,000 $420,000
Cost of goods sold 473,600 370,000
Gross profit $72,400 $50,000
Selling expenses $21,600 $18,000
Administrative expenses 19,200 15,000
Total operating expenses $40,800 $33,000
Income before income tax $31,600 $17,000
Income tax expenses 12,600 6,800
Net income $19,000 $10,200

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.

Boone Company
Comparative Income Statement
For the Years Ended December 31
Current year Amount Previous year Amount Increase (Decrease) Amount Increase (Decrease) Percent
Sales $546,000 $420,000 $ %
Cost of goods sold 473,600 370,000 %
Gross profit $72,400 $50,000 $ %
Selling expenses 21,600 18,000 %
Administrative expenses 19,200 15,000 %
Total operating expenses $40,800 $33,000 $ %
Income before income tax $31,600 $17,000 $ %
Income tax expense 12,600 6,800 %
Net income $19,000 $10,200 $ %

b. The net income for Boone Company increased by 86.3% between years. This increase was the combined result of an   in sales of 30% 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.

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Expert Solution

Comparative Income Statement
For the years ended December 31
Current year Amount Previous year Amount Increase (Decrease) Amount Increase (Decrease) Percent
Sales 546000 420000 126000 30.0%
Cost of goods sold 473600 370000 103600 28.0%
Gross Profit 72400 50000 22400 44.8%
Selling expenses 21600 18000 3600 20.0%
Administrative expenses 19200 15000 4200 28.0%
Total operating expense 40800 33000 7800 23.6%
Income before income tax 31600 17000 14600 85.9%
Income tax expense 12600 6800 5800 85.3%
Net income 19000 10200 8800 86.3%
b
The net income for Boone Company increased by 86.3% between years. This increase was the combined result an increase in sales of 30% and 28 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

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