Question

Horizontal Analysis of the Income Statement Income statement data for Winthrop Company for two recent years ended December 31, are as follows: Current Year Previous Year Sales $460,800 375,000 $360,000 300,000 Cost of goods sold Gross profit $85,800 $60,000 Selling expenses $24,780 $21,000 Administrative expenses 22,680 18,000 Total operating expenses $47,460 $39,000 Income before income tax $21,000 $38,340 15,300 Income tax expenses 8,400 Net income $23,040 $12,600 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 Previous Increase Increase year year (Decrease) (Decrease) Amount Amount Amount Percent $460,800 $360,000 $ Sales % Check Me Work morboel Mw Worlu remaining Previous Next

Answer 1

a
Winthrop Company
Comparative Income Statement
For the Years Ended December 31
	Current	Previous	Increase	Increase
	year	year	(Decrease)	(Decrease)
	Amount	Amount	Amount	Percent
Sales	460800	360000	100800	28.0%
Cost of goods sold	375000	300000	75000	25.0%
Gross profit	85800	60000	25800	43.0%
Selling expenses	24780	21000	3780	18.0%
Administrative expenses	22680	18000	4680	26.0%
Total operating expenses	47460	39000	8460	21.7%
Income before income tax	38340	21000	17340	82.6%
Income tax expense	15300	8400	6900	82.1%
Net income	23040	12600	10440	82.9%
b
The net income for Winthrop Company increased between years. This increase was the combined result of an increase in sales and lower percentage increase in cost of goods sold. The cost of goods sold increased at a slower rate than the increase in sales, thus causing the percentage increase in gross profit to be greater than the percentage increase in sales.