Question

Horizontal Analysis of the Income Statement

Income statement data for Boone Company for the years ended December 31, 20Y5 and 20Y4, are as follows:

	20Y5		20Y4
Sales	$487,500		$390,000
Cost of goods sold	(414,800)		(340,000)
Gross profit	$72,700		$50,000
Selling expenses	$(20,700)		$(18,000)
Administrative expenses	(18,450)		(15,000)
Total operating expenses	$(39,150)		$(33,000)
Income before income tax	$33,550		$17,000
Income tax expenses	(13,400)		(6,800)
Net income	$20,150		$10,200

a. Prepare a comparative income statement with horizontal analysis, indicating the increase (decrease) for 20Y5 when compared with 20Y4. Round percentage answers to one decimal place.

Boone Company
Comparative Income Statement
For the Years Ended December 31, 20Y5 and 20Y4
	20Y5 Amount	20Y4 Amount	Increase (Decrease) Amount	Increase (Decrease) Percent
Sales	$487,500	$390,000	$	%
Cost of goods sold	(414,800)	(340,000)		%
Gross profit	$72,700	$50,000	$	%
Selling expenses	$(20,700)	$(18,000)	$	%
Administrative expenses	(18,450)	(15,000)		%
Total operating expenses	$(39,150)	$(33,000)	$	%
Income before income tax	$33,550	$17,000	$	%
Income tax expense	(13,400)	(6,800)		%
Net income	$20,150	$10,200	$	%

b. All of the following statements regarding Boone Company are true except:

Answer 1

Solution.

Boone Company
Comparative Income Statement
For the Years Ended December 31, 20Y5 and 20Y4
	20Y5 Amount	20Y4 Amount	Increase (Decrease) Amount	Increase (Decrease) Percent
Sales	$487,500	$390,000	$97,500	25.0
Cost of goods sold	-414,800	-340,000	($74,800)	22.0
Gross profit	$72,700	$50,000	$22,700	45.4
Selling expenses	($20,700)	($18,000)	($2,700)	15.0
Administrative expenses	-18,450	-15,000	($3,450)	23.0
Total operating expenses	($39,150)	($33,000)	($6,150)	18.6
Income before income tax	$33,550	$17,000	$16,550	97.4
Income tax expense	-13,400	-6,800	($6,600)	97.1
Net income	$20,150	$10,200	$9,950	97.5