Question

Horizontal Analysis of the Income Statement

Income statement data for Boone Company for two recent years ended December 31, are as follows:

Horizontal Analysis of the Income Statement Income statement data for Boone Company for two recent years ended December 31, are as follows Sales Cost of goods sold Gross profit Selling expenses Administrative expenses Total operating expenses Income before income tax Income tax expenses Net income Current Year $825,500 706,800 $118,700 $35,100 31,250 $66,350 $52,350 20,900 $31,450 Previous Year $650,000 570,000 $80,000 $30,000 25,000 $55,000 $25,000 10,000 $15,000 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.

Answer 1

Boone Company
Comparative Income Statement
For the Years Ended December 31, 20—
	Current year Amount	Previous year Amount	Increase (Decrease) Amount	Increase (Decrease) Percent
Sales	$825,500	$650,000	$175,500	27.0%
Cost of goods sold	706800	570000	$136,800	24.0%
Gross profit	$118,700	$80,000	$38,700	48.4%
Selling expenses	35100	30000	$5,100	17.0%
Administrative expenses	31250	25000	$6,250	25.0%
Total operating expenses	$66,350	$55,000	$11,350	20.6%
Income before income tax	$52,350	$25,000	$27,350	109.4%
Income tax expense	$20,900	$10,000	$10,900	109.0%
Net income	$31,450	$15,000	$16,450	109.7%
The net income for Boone Company increased by 109.7% between years. This increase was the combined result of an   in sales of 27% and   percentage   in cost of goods sold. The cost of goods sold increased at a   rate than the increase in sales, thus causing the percentage increase in gross profit to be than the percentage increase in sales.