Question

he McCumber Corporation data for the current year:

Account	Current year	Prior year
Current assets	$76,200	$60,000
A/R	$59,400	$44,000
Mdse. Inventory	$51,200	$40,000
Current liabilities	$82,500	$55,000
Long-term liabilities	$38,000	$30,000
Common stock (5,000 shares)	$47,880	$42,000
Retained earnings	$18,420	$17,000
Net sales revenue	$618,000	$515,000
COGS	$478,140	$385,000
Gross Profit	$139,860	$130,000
Selling/General expenses	$47,860	$50,000
Net income before taxes	$92,000	$80,000
Income tax expense	$23,000	$20,000
Net Income	$69,000	$60,000

With respect to net income before income tax expense and net income, what would a horizontal analysis report?

Group of answer choices

Both net income before income tax expense and net income increased by $129,000.

Both net income before tax expense and net income were 11.17% of net sales revenue.

There was an increase in both net income before income tax expense and net income of 15.00%.

The current ratio is 0.92.

Answer 1

Answer

• Correct statement is Option #3
  There was an increase in both net income before income tax expense and net income of 15.00%.

>Increase % in Net income before taxes = $12000 / $ 80000 = 15%
>Increase % I Net income = $ 9000 / $ 60000 = 15%

• Also, Current ratio = 0.92, but its not related to net income.
  Current asset/Current liabilities = 76200 / 82500 = 0.92