Question

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	$767,410		$665,000
Cost of goods sold	554,400		420,000
Gross profit	$213,010		$245,000
Selling expenses	$78,400		$56,000
Administrative expenses	45,080		35,000
Total operating expenses	$123,480		$91,000
Income from operations	$89,530		$154,000
Other revenue	3,567		2,800
Income before income tax	$93,097		$156,800
Income tax expense	26,100		47,000
Net income	$66,997		$109,800

Required:

1. Prepare a comparative income statement with horizontal analysis for the two-year period, using 20Y1 as the base year. Round percentages to one decimal place. Use the minus sign to indicate a decrease in the "Increase (Decrease)" columns.

McDade Company
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
	20Y2	20Y1	Difference - Amount	Difference - Percent
Sales	$767,410	$665,000	$	%
Cost of goods sold	554,400	420,000		%
Gross profit	$213,010	$245,000	$	%
Selling expenses	$78,400	$56,000	$	%
Administrative expenses	45,080	35,000		%
Total operating expenses	$123,480	$91,000	$	%
Income from operations	$89,530	$154,000	$	%
Other revenue	3,567	2,800		%
Income before income tax	$93,097	$156,800	$	%
Income tax expense	26,100	47,000		%
Net income	$66,997	$109,800	$	%

Feedback

2. Net income has

• increased
• decreased

from 20Y1 to 20Y2. Sales have

• increased
• decreased

; however, the cost of goods sold has

• increased
• decreased

, causing the gross profit to

• increase
• decrease

.

Answer 1

Ans. 1	McDade Company
	Comparative Income Statement
	For the Years Ended December 31, 20Y2 and 20Y1
		20Y2	20Y1	Difference - Amount	Difference - Percent
	Sales	$767,410	$665,000	$102,410	15.4%
	Cost of goods sold	554,400	420,000	$134,400	32.0%
	Gross profit	$213,010	$245,000	($31,990)	-13.1%
	Selling expenses	$78,400	$56,000	$22,400	40.0%
	Administrative expenses	45,080	35,000	$10,080	28.8%
	Total operating expenses	$123,480	$91,000	$32,480	35.7%
	Income from operations	$89,530	$154,000	($64,470)	-41.9%
	Other revenue	3,567	2,800	$767	27.4%
	Income before income tax	$93,097	$156,800	($63,703)	-40.6%
	Income tax expense	26,100	47,000	($20,900)	-44.5%
	Net income	$66,997	$109,800	($42,803)	-39.0%
	Difference in amount = Particular amount of current year 20Y2 - Particular amount of previous year 20Y1
	Difference in percentage = Difference in amount / Particular amount of base (20Y1) or previous year * 100
Ans. 2	Net income has decreased from 20Y1 to 20Y2. Sales has increased; however,
	the cost of goods sold has increased, causing the gross profit to decrease.