Question

For 2016, Clapton Company reported a decline in net income. At the end of the year, S. Hand, the president, is presented with the following condensed comparative income statement:

Clapton Company

Comparative Income Statement

For the Years Ended December 31, 2016 and 2015

1		2016	2015
2	Sales	$6,787,200.00	$6,060,000.00
3	Cost of goods sold	2,444,200.00	2,020,000.00
4	Gross profit	$4,343,000.00	$4,040,000.00
5	Selling expenses	$1,125,000.00	$900,000.00
6	Administrative expenses	711,200.00	560,000.00
7	Total operating expenses	$1,836,200.00	$1,460,000.00
8	Income from operations	$2,506,800.00	$2,580,000.00
9	Other income	165,000.00	150,000.00
10	Income before income tax	$2,671,800.00	$2,730,000.00
11	Income tax expense	60,000.00	50,000.00
12	Net income	$2,611,800.00	$2,680,000.00

	Required:
1.	Prepare a comparative income statement with horizontal analysis for the two-year period, using 2015 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.

Answer 1

Answer:-1)-

Clapton Company
Horizontal Analysis of Income Statements
Particulars	2016	2015	Change	Change
	$	$	$	%
Sales	6787200	6060000	727200	12.0
Cost of goods sold	2444200	2020000	424200	21.0
Gross profit	4343000	4040000	303000	7.5
Selling expesnes	1125000	900000	225000	25.0
Administartive expenses	711200	560000	151200	27.0
Total Operating expesnes	1836200	1460000	376200	25.8
Income from operations	2506800	2580000	-73200	-2.8
Other Income	165000	150000	15000	10.0
Income before taxes	2671800	2730000	-58200	-2.1
Income taxes	60000	50000	10000	20.0
Net income	2611800	2680000	-68200	-2.5

2)- On the basis of Horizontal Analysis, gross profit is increased by 7.5% but profit is decreased by 2.5% and sales is increased by 12%.