Question

Horizontal Analysis of the Income Statement Income statement data for Winthrop Company for two recent years ended December 31, are as follows Current Year $799,800 685,800 $114,000 $34,510 30,480 $64,990 $49,010 19,600 $29,410 Previous Year $620,000 540,000 $80,000 $29,000 24,000 $53,000 $27,000 10,800 $16,200 Sales Cost of goods sold Gross profit Selling expenses Administrative expenses Total operating expenses Income before income tax Income tax expenses Net income

Answer 1

SOLUTION

A.

	Current Year Amount (A)	Previous Year Amount (B)	Increase/ (Decrease) amount (C=A-B)	Increase/ (Decrease) Percent (C/B)
Sales	799,800	620,000	179,800	29%
Cost of goods sold	685,800	540,000	145,800	27%
Gross profit	114,000	80,000	34,000	42.5%
Selling expenses	34,510	29,000	5,510	19%
Administrative expenses	30,480	24,000	6,480	27%
Total Operating expenses	64,990	53,000	11,990	22.6%
Income before income tax	49,010	27,000	22,010	81.5%
Income tax expenses	19,600	10,800	8,800	81.5%
Net income	29,410	16,200	13,210	81.5%

(B) The net income for winthrop company increased between years. this increase is a combined result of an increase in sales and lower percentage increase in cost of goods sold. The cost of goods sold increased at a slower rate than the increase in sales, thus causing the percentage increase in gross profit to be greater than the percentage increase in sales.