Horizontal Analysis of Income Statement
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 |
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20Y2 | 20Y1 | ||
Sales | $647,570 | $551,000 | |
Cost of goods sold | 476,000 | 350,000 | |
Gross profit | $171,570 | $201,000 | |
Selling expenses | $66,700 | $46,000 | |
Administrative expenses | 38,400 | 29,000 | |
Total operating expenses | $105,100 | $75,000 | |
Income from operations | $66,470 | $126,000 | |
Other income | 2,921 | 2,300 | |
Income before income tax | $69,391 | $128,300 | |
Income tax expense | 19,400 | 38,500 | |
Net income | $49,991 | $89,800 |
Required:
1. Prepare a comparative income statement with horizontal analysis for the two-year period, using 20Y1 as the base year. Use the minus sign to indicate a decrease in the "Difference" columns. If required, round to one decimal place.
McDade Company | ||||
Comparative Income Statement | ||||
For the Years Ended December 31, 20Y2 and 20Y1 | ||||
20Y2 | 20Y1 | Difference - Amount | Difference - Percent | |
Sales | $647,570 | $551,000 | $ | % |
Cost of goods sold | 476,000 | 350,000 | % | |
Gross profit | $171,570 | $201,000 | $ | % |
Selling expenses | $66,700 | $46,000 | $ | % |
Administrative expenses | 38,400 | 29,000 | % | |
Total operating expenses | $105,100 | $75,000 | $ | % |
Income from operations | $66,470 | $126,000 | $ | % |
Other income | 2,921 | 2,300 | % | |
Income before income tax | $69,391 | $128,300 | $ | % |
Income tax expense | 19,400 | 38,500 | % | |
Net income | $49,991 | $89,800 | $ | % |
2. Net income has _______ from 20Y1 to 20Y2. Sales have _________ ; however, the cost of goods sold has , ______causing the gross profit to ._______
Solution
McDade Company | ||||
Comparative Income statement | ||||
Horizontal analysis | ||||
For the Years Ended December 31, 20Y2 and 20Y1 | ||||
20Y2 | 20Y1 | Change | % change | |
Sales | $ 647,570 | $ 551,000 | $ 96,570 | 17.5% |
Cost of goods sold | $ 476,000 | $ 350,000 | $ 126,000 | 36.0% |
Gross Margin | $ 171,570 | $ 201,000 | -$ 29,430 | -14.6% |
Selling expenses | $ 66,700 | $ 46,000 | $ 20,700 | 45.0% |
Administrative expenses | $ 38,400 | $ 29,000 | $ 9,400 | 32.4% |
Total Operating expenses | $ 105,100 | $ 75,000 | $ 30,100 | 40.1% |
Income from operations | $ 66,470 | $ 126,000 | -$ 59,530 | -47.2% |
Other income | $ 2,921 | $ 2,300 | $ 621 | 27.0% |
Income before income taxes | $ 69,391 | $ 128,300 | -$ 58,909 | -45.9% |
Income tax expense | $ 19,400 | $ 38,500 | -$ 19,100 | -49.6% |
Net income | $ 49,991 | $ 89,800 | -$ 39,809 | -44.3% |
Requirement 2
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. |
Please provide all options from drop-down in requirement 2 in case my answer do not match.
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