Question

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

1			Current Year	Previous Year
2	Sales		$1,948,800.00	$1,740,000.00
3	Cost of goods sold		1,689,975.00	1,522,500.00
4	Gross profit		$258,825.00	$217,500.00
5	Selling expenses		$71,875.00	$62,500.00
6	Administrative expenses		51,520.00	46,000.00
7	Total operating expenses		$123,395.00	$108,500.00
8	Income before income tax		$135,430.00	$109,000.00
9	Income tax expense		13,398.00	8,700.00
10	Net income		$122,032.00	$100,300.00
A.		Prepare a comparative income statement with horizontal analysis, indicating the increase (decrease) for the current year when compared with the previous year. Round percentages to one decimal place.
B.		What conclusions can be drawn from the horizontal analysis? Round the answers to one decimal place.

Winthrop Company

Comparative Income Statement

For the Years Ended December 31

1				Increase (Decrease)	Increase (Decrease)
2		Current Year	Previous Year	Amount	Percent
3	Sales	$1,948,800.00	$1,740,000.00
4	Cost of goods sold	1,689,975.00	1,522,500.00
5	Gross profit	$258,825.00	$217,500.00
6	Selling expenses	$71,875.00	$62,500.00
7	Administrative expenses	51,520.00	46,000.00
8	Total operating expenses	$123,395.00	$108,500.00
9	Income before income tax	$135,430.00	$109,000.00
10	Income tax expense	13,398.00	8,700.00
11	Net income	$122,032.00	$100,300.00

The net income for Winthrop Company increased by HOW MUCH?

% between years. This increase was the combined result of an increase in sales of HOW MUCH? % and lower percentage increase in cost of goods sold.

Answer 1

Winthrop Company
Comparative Income Statement
For the Years Ended December 31
Particulars	Current Year	Previous Year	Increase (Decrease)	Increase (Decrease)
			Amount	Percentage
Sales	19,48,800	17,40,000	2,08,800	12.0%
Cost of goods sold	16,89,975	15,22,500	1,67,475	11.0%
Gross profit	2,58,825	2,17,500	41,325	19.0%
Selling expenses	71,875	62,500	9,375	15.0%
Administrative expenses	51,520	46,000	5,520	12.0%
Total operating expenses	1,23,395	1,08,500	14,895	13.7%
Income before income tax	1,35,430	1,09,000	26,430	24.2%
Income tax expense	13,398	8,700	4,698	54.0%
Net income	1,22,032	1,00,300	21,732	21.7%

The net income for Winthrop Company increased by 21.7% between years.

This increase was the combined result of an increase in sales of 12.0%and lower percentage increase in cost of goods sold.