Question

Convert to SmartArt- n o Arrange Quick - Styles Shape Effects Select- Paragraph Drawing Editing Click to add title Data for Sherman, Inc. are as follows: Net Sales Cost of Goods Sold Selling and Administrative Expenses Other Expenses Income Tax 2017 $850,000 635,000 50,000 20,000 40,000 2016 $798,000 580,000 35,000 15,000 55,000 Prepare a horizontal analysis of the comparative income statement of Sherman, Inc. (Round to one decimal place.) Use a multi-step income statement NOTES COMMENTS B -

Answer 1

Solution:

Sherman, Inc.
Comparative Income Statement with Horizontal Analysis
For the year ended 2016 and 2017
	2017	2016	Increase/(Decrease)
	Amount	Amount	Amount	Percent
Net Sales	$        850,000	$   798,000	$          52,000	6.5%
Cost of goods sold	$        635,000	$   580,000	$          55,000	9.5%
Gross Profit (a)	$        215,000	$   218,000	$          (3,000)	-1.4%
Selling and Administrative Expenses	$          50,000	$     35,000	$          15,000	42.9%
Total operating expenses (b)	$          50,000	$     35,000	$          15,000	42.9%
Operating Income (a-b)	$        165,000	$   183,000	$        (18,000)	-9.8%
Other Expenses	$          20,000	$     15,000	$            5,000	33.3%
Income before income taxes	$        145,000	$   168,000	$        (23,000)	-13.7%
Income tax expense	$          40,000	$     55,000	$        (15,000)	-27.3%
Net Income	$        105,000	$   113,000	$          (8,000)	-7.1%

Notes:

Net income is decreased by $ 8,000 in 2017, because of following reasons:

1) $ 3,000 is decreased because, Increase in net sales is $3,000 less than the increase in cost of goods sold.

2) Both the expenses (Administrative and other expenses) increased by $15,000 and $5,000 respectively but at the same time income tax expenses decreased by $15,000 which gives the net effect decrease of $ 5,000.

So, in total $ 8,000 decrease in net income