Question

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

1		Current Year	Previous Year
2	Sales	$1,846,800.00	$1,620,000.00
3	Cost of goods sold	1,541,430.00	1,401,300.00
4	Gross profit	$305,370.00	$218,700.00
5	Selling expenses	$80,500.00	$70,000.00
6	Administrative expenses	50,600.00	46,000.00
7	Total operating expenses	$131,100.00	$116,000.00
8	Income before income tax	$174,270.00	$102,700.00
9	Income tax expense	12,960.00	8,100.00
10	Net income	$161,310.00	$94,600.00

A.

Prepare a comparative income statement with horizontal analysis, indicating the increase (decrease) for the current year when compared with the previous year. Round percentages to one decimal place.

B.

What conclusions can be drawn from the horizontal analysis? Round the answers to one decimal place.

A).Prepare a comparative income statement with horizontal analysis, indicating the increase (decrease) for the current year when compared with the previous year. Round percentages to one decimal place.

Winthrop Company

Comparative Income Statement

For the Years Ended December 31

1				Increase (Decrease)	Increase (Decrease)
2		Current Year	Previous Year	Amount	Percent
3	Sales	$1,846,800.00	$1,620,000.00
4	Cost of goods sold	1,541,430.00	1,401,300.00
5	Gross profit	$305,370.00	$218,700.00
6	Selling expenses	$80,500.00	$70,000.00
7	Administrative expenses	50,600.00	46,000.00
8	Total operating expenses	$131,100.00	$116,000.00
9	Income before income tax	$174,270.00	$102,700.00
10	Income tax expense	12,960.00	8,100.00
11	Net income	$161,310.00	$94,600.00

B) What conclusions can be drawn from the horizontal analysis? Round the answers to one decimal place.

The net income for Winthrop Company increased by approximately _____% this year. This increase was the combined result of an (increase/decrease) in sales of ____% and (lower/higher) (increase/decrease)   percentage in cost of goods sold.

The cost of goods sold increased at a (faster/slower) rate than the increase in sales, thus causing the percentage increase in gross profit to be (less/greater) than the percentage increase in sales.

Answer 1

				Increase/Decrease
		Current	Previous	Amouunt	Percent
Sales		1846800	1620000	226800	14.00%
Cost of Goods sold		1541430	1401300	140130	10.00%
Gross Profit		305370	218700	86670	39.63%
Selling expensne		80500	70000	10500	15.00%
Admin expense		50600	46000	4600	10.00%
Total Operating expense		131100	116000	15100	13.02%
Income before tax		174270	102700	71570	69.69%
Income tax expense		12960	8100	4860	60.00%
Net Income		161310	94600	66710	70.52%
The net income fr company increased by approx 70.52%.
This increase was combined result of an increase in sales of 14% and
lower increase percentage in cost of goods sold.
The cost of goods sold increased at a slower rate than increase in sales,
thus causing the % increasse in gross profit to be greater than percentage increase in sales