Question

2.

Horizontal Analysis of the Income Statement

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

	Current Year			Previous Year
Sales	$806,000			$650,000
Cost of goods sold	665,500			550,000
Gross profit	$140,500			$100,000
Selling expenses	$39,900			$35,000
Administrative expenses	36,600			30,000
Total operating expenses	$76,500			$65,000
Income before income tax	$64,000			$35,000
Income tax expenses	25,600			14,000
Net income	$38,400			$21,000

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.

Boone Company
Comparative Income Statement
For the Years Ended December 31
	Current year Amount	Previous year Amount	Increase (Decrease) Amount	Increase (Decrease) Percent
Sales	$806,000	$650,000	$	%
Cost of goods sold	665,500	550,000		%
Gross profit	$140,500	$100,000	$	%
Selling expenses	39,900	35,000		%
Administrative expenses	36,600	30,000		%
Total operating expenses	$76,500	$65,000	$	%
Income before income tax	$64,000	$35,000	$	%
Income tax expense	25,600	14,000		%
Net income	$38,400	$21,000	$	%

b. The net income for Boone Company increased by 82.9% between years. This increase was the combined result of an   in sales of 24% 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.

Answer 1

Boone Company
Comparative Income Statement
For the Years Ended December 31
	Current year Amount	Previous year Amount	Increase (Decrease) Amount	Increase (Decrease) Percent
Sales	$806,000	$650,000	$156,000	24.0%
Cost of goods sold	665,500	550,000	$115,500	21.0%
Gross profit	$140,500	$100,000	$40,500	40.5%
Selling expenses	39,900	35,000	$4,900	14.0%
Administrative expenses	36,600	30,000	$6,600	22.0%
Total operating expenses	$76,500	$65,000	$11,500	17.7%
Income before income tax	$64,000	$35,000	$29,000	82.9%
Income tax expense	25,600	14,000	$11,600	82.9%
Net income	$38,400	$21,000	$17,400	82.9%