In: Accounting
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.
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 | ||||||