Question

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

	Current Year			Previous Year
Sales	$1,016,400			$770,000
Cost of goods sold	845,000			650,000
Gross profit	$171,400			$120,000
Selling expenses	$52,460			$43,000
Administrative expenses	46,800			36,000
Total operating expenses	$99,260			$79,000
Income before income tax	$72,140			$41,000
Income tax expenses	28,900			16,400
Net income	$43,240			$24,600

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.

Winthrop Company
Comparative Income Statement
For the Years Ended December 31
	Current year Amount	Previous year Amount	Increase (Decrease) Amount	Increase (Decrease) Percent
Sales	$1,016,400	$770,000	$	%
Cost of goods sold	845,000	650,000		%
Gross profit	$171,400	$120,000	$	%
Selling expenses	$52,460	$43,000	$	%
Administrative expenses	46,800	36,000		%
Total operating expenses	$99,260	$79,000	$	%
Income before income tax	$72,140	$41,000	$	%
Income tax expense	28,900	16,400		%
Net income	$43,240	$24,600	$	%

b. The net income for Winthrop Company increased between years. This increase was the combined result of an   in sales 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.

Answer 1

Comparative Income Statement ($)

	Current year	Previous Year	Increase/(Decrease)	%
Sales	1016,400	770,000	246,400	32%
COGS	845,000	650,000	195,000	30%
GROSS PROFIT	171,400	120,000	51,400	42.83%
SELLING	52,460	43, 000	9,460	22%
ADMIN	46,800	36,000	10,800	30%
TOTAL OPERATING EXPENSES	99,260	79,000	20,200	25.57%
IMCOME BEFORE TAX	72,140	41,000	31,140	75.95%
INCOME TAX	28,900	16,400	12,500	76.22%
NET INCOME	43,240	24,600	18,640	75.77%

The net income for Winthrop Company increased between years. This increase was the combined result of an  INCREASE OF 32% in sales and 30% percentage INCREASE in cost of goods sold. The cost of goods sold increased at a LESSER rate than the increase in sales, thus causing the percentage increase in gross profit to be HIGHER than the percentage increase in sales.