Question

For 20Y2, McDade Company reported a decline in net income. At the end of the year, T. Burrows, the president, is presented with the following condensed comparative income statement:

McDade Company

Comparative Income Statement

For the Years Ended December 31, 20Y2 and 20Y1

1		20Y2	20Y1
2	Sales	$7,750,400.00	$6,920,000.00
3	Cost of goods sold	2,791,067.00	2,306,667.00
4	Gross profit	$4,959,333.00	$4,613,333.00
5	Selling expenses	$1,187,500.00	$950,000.00
6	Administrative expenses	701,100.00	570,000.00
7	Total operating expenses	$1,888,600.00	$1,520,000.00
8	Income from operations	$3,070,733.00	$3,093,333.00
9	Other income	134,400.00	120,000.00
10	Income before income tax	$3,205,133.00	$3,213,333.00
11	Income tax expense	60,000.00	50,000.00
12	Net income	$3,145,133.00	$3,163,333.00

1.

Prepare a comparative income statement with horizontal analysis for the two-year period, using 20Y1 as the base year. Use the minus sign to indicate an amount or percent decrease. If required, round percentages to one decimal place.

2.

To the extent the data permit, comment on the significant relationships revealed by the horizontal analysis prepared in (1). Prepare a comparative income statement with horizontal analysis for the two-year period, using 20Y1 as the base year. Use the minus sign to indicate an amount or percent decrease. If required, round percentages to one decimal place. Score: 0/77 McDade Company Comparative Income Statement For the Years Ended December 31, 20Y2 and 20Y1 1 Increase (Decrease) Increase (Decrease) 2 20Y2 20Y1 Amount Percent 3 Sales $7,750,400.00 $6,920,000.00 4 Cost of goods sold 2,791,067.00 2,306,667.00 5 Gross profit $4,959,333.00 $4,613,333.00 6 Selling expenses $1,187,500.00 $950,000.00 7 Administrative expenses 701,100.00 570,000.00 8 Total operating expenses $1,888,600.00 $1,520,000.00 9 Income from operations $3,070,733.00 $3,093,333.00 10 Other income 134,400.00 120,000.00 11 Income before income tax $3,205,133.00 $3,213,333.00 12 Income tax expense 60,000.00 50,000.00 13 Net income $3,145,133.00 $3,163,333.00

Answer 1

Ans:

McDade Company Comparative Income Statement For the Years Ended December 31, 20Y2 and 20Y1

1				Increase (Decrease)	Increase (Decrease)
2		20Y2	20Y1	Amount	Percent
3	Sales	$7,750,400.00	$6,920,000.00	$830,400	12.0 %
4	Cost of goods sold	2,791,067.00	2,306,667.00	$484,400	21.0%
5	Gross profit	$4,959,333.00	$4,613,333.00	$346,000	7.5%
6	Selling expenses	$1,187,500.00	$950,000.00	$237,500	25.0%
7	Administrative expenses	701,100.00	570,000.00	$131,100	23.0%
8	Total operating expenses	$1,888,600.00	$1,520,000.00	$368,600	24.3%
9	Income from operations	$3,070,733.00	$3,093,333.00	($22,600)	(.7%)
10	Other income	134,400.00	120,000.00	$14,400	12.0%
11	Income before income tax	$3,205,133.00	$3,213,333.00	($8,200)	( .26%)
12	Income tax expense	60,000.00	50,000.00	$10,000	20.0%
13	Net income	$3,145,133.00	$3,163,333.00	($18,200)	( .6%)

2. Comments on significant relationships

Sales increases by 12% compared to previous year and Corresponding to that cost of goods sold and Gross profit also increased tremendously as well

However Selling expenses and Operating expenses increases in an unexpected manner compared to previous year , which leads to decrease in Net income ,,If selling expenses and Operating expenses is controlled then the net income may be appeared positively .

Note : Net Income differrence =.575 is rounded off to next higher decimal number of 0.6

Cost of goods sold =20.999 is rounded off to 21.0 %