Question

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.

Answer 1

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 .