Question

Prepare horizontal and vertical analyses. E15.4 (LO 1) The comparative condensed income statements of Hendi A.S. are shown below. Hendi A.S. Comparative Condensed Income Statements For the Years Ended December 31 2020 2019 Net sales t600,000 t500,000 Cost of goods sold 468,000 400,000 292x Gross profit Operating expenses 132,000 100,000 60,000 54,000 Net income t 72,000 t 46,000 Instructions Prepare a horizontal analysis of the income statement data for Hendi using 2019 as a base. (Show a. the amounts of increase or decrease.) b. Prepare a vertical analysis of the income statement data for Hendi in columnar form for both years.

Answer 1

a. Horizontal analysis using 2019 as a base

	2020	2019	Increase /(Decrease)
			Amount                                    %
Sales	600,000	500,000	100000[600000-500000]	20%[100000/500000]*100
Cost of goods sold	468,000	400,000	68000[468000-400000]	17%[68000/400000]*100
Gross profit	132,000	100,000	32000[132000-100000]	32%[32000/100000]*100
Operating expenses	60,000	54,000	6000[60000-54000]	11.11%[6000/54000]*100
Net Income	72,000	46,000	26000[72000-46000]	56.52%[26000/46000]*100

b.Vertical analysis

	2020 Amount	2020 %	2019 Amount	2019 %
Net sales	600,000	100%	500,000	100%
cost of goods sold	468,000	78%[468000/600000]*100	400,000	80%[400000/500000]*100
gross profit	132,000	22%[132000/600000]*100	100,000	20%[1000000/500000]*100
operating expenses	60,000	10%[60000/600000]*100	54,000	10.8%[54000/500000]*100
Net Income	72,000	12%[72000/600000]*100	46,000	9.2%[46000/500000]*100