Question

For 2016, Clapton Company reported a decline in net income. At the end of the year,...

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.

Homework Answers

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%.

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