Question

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

	Current Year			Previous Year
Sales	$701,800			$580,000
Cost of goods sold	590,000			500,000
Gross profit	$111,800			$80,000
Selling expenses	$31,080			$28,000
Administrative expenses	27,370			23,000
Total operating expenses	$58,450			$51,000
Income before income tax	$53,350			$29,000
Income tax expenses	21,300			11,600
Net income	$32,050			$17,400

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	$701,800	$580,000	$	%
Cost of goods sold	590,000	500,000		%
Gross profit	$111,800	$80,000	$	%
Selling expenses	$31,080	$28,000	$	%
Administrative expenses	27,370	23,000		%
Total operating expenses	$58,450	$51,000	$	%
Income before income tax	$53,350	$29,000	$	%
Income tax expense	21,300	11,600		%
Net income	$32,050	$17,400	$	%

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

Winthrop Company Comparative Income Statement For the Years Ended December 31 Increase (Decrease) Current Year Previous Year Amount Percent 580,000 $ 500,000 $ 80,000 $ 28,000 $ 23,000 $ 51,000 $ 29,000 $ 11,600 $ 17,400 $ Sales $ 21.0% 701,800 121,800 Cost of goods sold Gross profit Selling expenses Administrative expenses Total operating expenses Income before incometax 590,000 $ $ $ 18.0% 90,000 111,800 $ $ 39.8% 31,800 31,080 $ $ 11.0% 3,080 27,370 $ 58450 $ 53,350 $ $ 19.0% 4,370 7,450 14.6% 84.0% 24,350 Income tax expense 21,300 $ $ 9,700 83.6% Net income 32,050 $ 84.2% 14,650

The net income for Winthrop Company increased between years. This increase was the combined result of an increase in sales and 18 percentage increase in cost of goods sold. The cost of goods sold increased at a lower rate than the increase in sales, thus causing the percentage increase in gross profit to be higher than the percentage increase in sales.