Question

1. 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	$489,402		$408,000
   Cost of goods sold	364,000		260,000
   Gross profit	$125,402		$148,000
   Selling expenses	$51,000		$34,000
   Administrative expenses	29,920		22,000
   Total operating expenses	$80,920		$56,000
   Income from operations	$44,482		$92,000
   Other revenue	2,055		1,700
   Income before income tax	$46,537		$93,700
   Income tax expense	13,000		28,100
   Net income	$33,537		$65,600

   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	$489,402	$408,000	$	%
   Cost of goods sold	364,000	260,000		%
   Gross profit	$125,402	$148,000	$	%
   Selling expenses	$51,000	$34,000	$	%
   Administrative expenses	29,920	22,000		%
   Total operating expenses	$80,920	$56,000	$	%
   Income from operations	$44,482	$92,000	$	%
   Other revenue	2,055	1,700		%
   Income before income tax	$46,537	$93,700	$	%
   Income tax expense	13,000	28,100		%
   Net income	$33,537	$65,600	$	%

   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

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	$489,402	$408,000	81402	20.0%
Cost of goods sold	364,000	260,000	104000	40%
Gross profit	$125,402	$148,000	-22598	-15.3%
Selling expenses	$51,000	$34,000	17000	50%
Administrative expenses	29,920	22,000	7920	36%
Total operating expenses	$80,920	$56,000	24920	44.5%
Income from operations	$44,482	$92,000	-47518	-51.7%
Other revenue	2,055	1,700	355	20.9%
Income before income tax	$46,537	$93,700	-47163	-50.3%
Income tax expense	13,000	28,100	-15100	-53.7%
Net income	$33,537	$65,600	-32063	-48.9%

Net income has

• decreased

from 20Y1 to 20Y2. Sales have

• increased

; however, the cost of goods sold has

• increased

, causing the gross profit to

• decrease