Question

reasons Income statement data for Winthrop Company for two recent years ended December Current Year Previous Year Sales $2,240,000 $2,000,000 Cost of goods sold (1.925.000) (1,750,000) Gross profit $315,000 $250.000 Seling expenses ${152,500) ${125.000) Administrative expenses (118,000) (100,000) Total operating expenses [270,500) $225,000) Income before income tax expense 544.500 $25.000 Income tax expense (17,800) (10,000) Net Income 3. Prepare a comparative income statement with horizontal analysis, indicating the increase (decrease for the current year when compared with the previous year. Frequired, round to one decimal place Winthrop Company Comparative Income Statement For the Year Ended December 31 Current Previous year Amount year Amount (Decrease) Amount (Decrease) Percent $2,240,000 $2,000,000 Sales Cost of goods sold (1,925.000 (1.750,000 Gross profit $315.000 $250,000 $(152,500) $125,000)

Answer 1

Solution

Winthrop Company
Comparative Income Statement
For the Years Ended December 31
	Current	Previous	Increase	Increase
	year	year	(Decrease)	(Decrease)
	Amount	Amount	Amount	Percent
Sales	$ 2,240,000	$ 2,000,000	$ 240,000	12.0%
Cost of goods sold	$ 1,925,000	$ 1,750,000	$ 175,000	10.0%
Gross profit	$ 315,000	$ 250,000	$ 65,000	26.0%
Selling expenses	$ 152,500	$ 125,000	$ 27,500	22.0%
Administrative expenses	$ 118,000	$ 100,000	$ 18,000	18.0%
Total operating expenses	$ 270,500	$ 225,000	$ 45,500	20.2%
Income before income tax	$ 44,500	$ 25,000	$ 19,500	78.0%
Income tax expense	$ 17,800	$ 10,000	$ 7,800	78.0%
Net income	$ 26,700	$ 15,000	$ 11,700	78.0%

.Requirement b

The net income of Winthrop company increased by 78.0% between years. This increase was the combined result of an Increase in sales and decrease in percentage of Cost of goods sold . The cost of goods sold increased at a Lower rate than increase in sales, thus causing the percentage increase in gross profit to be higher than percentage increase in sales.