Question

2.

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
	20Y2		20Y1
Sales	$731,359		$617,000
Cost of goods sold	538,200		390,000
Gross profit	$193,159		$227,000
Selling expenses	$76,700		$52,000
Administrative expenses	44,290		33,000
Total operating expenses	$120,990		$85,000
Income from operations	$72,169		$142,000
Other income	3,320		2,600
Income before income tax	$75,489		$144,600
Income tax expense	21,100		43,400
Net income	$54,389		$101,200

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	$731,359	$617,000	$	%
Cost of goods sold	538,200	390,000		%
Gross profit	$193,159	$227,000	$	%
Selling expenses	$76,700	$52,000	$	%
Administrative expenses	44,290	33,000		%
Total operating expenses	$120,990	$85,000	$	%
Income from operations	$72,169	$142,000	$	%
Other income	3,320	2,600		%
Income before income tax	$75,489	$144,600	$	%
Income tax expense	21,100	43,400		%
Net income	$54,389	$101,200	$	%

2. Net income has   from 20Y1 to 20Y2. Sales have  ; however, the cost of goods sold has  , causing the gross profit to  .

Answer 1

1
McDade Company
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
	20Y2	20Y1	Difference - Amount	Difference - Percent
Sales	731359	617000	114359	18.5%
Cost of goods sold	538200	390000	148200	38.0%
Gross profit	193159	227000	-33841	-14.9%
Selling expenses	76700	52000	24700	47.5%
Administrative expenses	44290	33000	11290	34.2%
Total operating expenses	120990	85000	35990	42.3%
Income from operations	72169	142000	-69831	-49.2%
Other income	3320	2600	720	27.7%
Income before income tax	75489	144600	-69111	-47.8%
Income tax expense	21100	43400	-22300	-51.4%
Net income	54389	101200	-46811	-46.3%
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 .