Question

# Horizontal Analysis of the Income Statement Income statement data for Winthrop Company for two recent years...

Horizontal Analysis of the Income Statement

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

 Current Year Previous Year Sales \$550,000 \$440,000 Cost of goods sold 467,400 380,000 Gross profit \$82,600 \$60,000 Selling expenses \$24,150 \$21,000 Administrative expenses 20,910 17,000 Total operating expenses \$45,060 \$38,000 Income before income tax \$37,540 \$22,000 Income tax expenses 15,000 8,800 Net income \$22,540 \$13,200

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 \$550,000 \$440,000 \$ % Cost of goods sold 467,400 380,000 % Gross profit \$82,600 \$60,000 \$ % Selling expenses 24,150 21,000 % Administrative expenses 20,910 17,000 % Total operating expenses \$45,060 \$38,000 \$ % Income before income tax \$37,540 \$22,000 \$ % Income tax expense 15,000 8,800 % Net income \$22,540 \$13,200 \$ %

b. The net income for Winthrop Company increased by 70.8% between years. This increase was the combined result of an in sales of 25% 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.

statement showing comparative income statement

 Particulars CY(A) PY(B) CHANGE(C=A-B) PERCENT(C/B*100) sales 550000 440000 110000 25% cost of goods sold 467400 380000 87400 23% gross profit 82600 60000 22600 37.7% selling expense 24150 21000 3150 15% administrative expense 20910 17000 3910 23% total operating cost 45060 38000 7060 18.6% income before income tax 37540 22000 15540 70.6% income tax expense 15000 8800 6200 70.5% net income 22540 13200 9340 70.8%

b)The cost of goods sold increased at a rate LOWER than the increase in sales, thus causing the percentage increase in gross profit to be GREATER than the percentage increase in sales.

Note:Part b of question is not properly framed or copied from text book ,although i have solved by assuming there is fill in the blank .

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