Question

Horizontal Analysis of Income Statement

For 20Y2, McDade Company reported a decline in net income. At the end of the year, T. Burrows, the president, is presented with the following condensed comparative income statement:

McDade Company Comparative Income Statement For the Years Ended December 31, 20Y2 and 20Y1
	20Y2		20Y1
Sales	$526,700		$465,000
Cost of goods sold	371,200		290,000
Gross profit	$155,500		$175,000
Selling expenses	$52,650		$39,000
Administrative expenses	31,300		25,000
Total operating expenses	$83,950		$64,000
Income from operations	$71,550		$111,000
Other income	2,552		2,000
Income before income tax	$74,102		$113,000
Income tax expense	20,700		33,900
Net income	$53,402		$79,100

Required:

1. Prepare a comparative income statement with horizontal analysis for the two-year period, using 20Y1 as the base year. Use the minus sign to indicate a decrease in the "Difference" columns. If required, round to one decimal place.

McDade Company
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
	20Y2	20Y1	Difference - Amount	Difference - Percent
Sales	$526,700	$465,000	$	%
Cost of goods sold	371,200	290,000		%
Gross profit	$155,500	$175,000	$	%
Selling expenses	$52,650	$39,000	$	%
Administrative expenses	31,300	25,000		%
Total operating expenses	$83,950	$64,000	$	%
Income from operations	$71,550	$111,000	$	%
Other income	2,552	2,000		%
Income before income tax	$74,102	$113,000	$	%
Income tax expense	20,700	33,900		%
Net income	$53,402	$79,100	$	%

2. Net income has from 20Y1 to 20Y2. Sales have ; however, the cost of goods sold has , causing the gross profit to

Answer 1

					Difference	Difference
			2002	2001	Amount	%
Sales			526700	465000	61700	13.27%
Cost of Goods sold			371200	290000	81200	28.00%
Gross profit			155500	175000	-19500	-11.14%
Selling expnse			52650	39000	13650	35.00%
Admin expense			31300	25000	6300	25.20%
Total operating expense			83950	64000	19950	31.17%
Income from operations			71550	111000	-39450	-35.54%
Other income			2552	2000	552	27.60%
Income before tax			74102	113000	-38898	-34.42%
Income tax expense			20700	33900	-13200	-38.94%
Nnet income			53402	79100	-25698	-32.49%
Net income has decreassed from 2001 to 2002 by 32.49%
Sales have increased however by 13.27%
Cost of goods sold has increased by 28%
Causing the Gross profit to decrease by 11.14%