HORIZONTAL ANALYSIS OF INCOME STATEMENTS Consolidated income statements for Peach Computer appear below:

PEACH COMPUTER, INC.

Consolidated Statements of Income

(In thousands except per share amounts)

Three fiscal years ended December 31 2009 2008 2007 Sales $9,188,748 $7,976,954 $7,086,542 Costs and expenses:

Cost of goods sold $6,844,915 $5,248,834 $3,991,337 Research and development 564,303 664,564 602,135 Selling, general, and administrative 1,384,111 1,632,362 1,687,262 Restructuring costs and other (126,855) 320,856 —

$8,666,474 $7,866,616 $6,280,734 Operating income $ 522,274 $ 110,338 $ 805,808 Interest and other income, net (21,988) 29,321 49,634 Income before income taxes $ 500,286 $ 139,659 $ 855,442 Provision for income taxes 190,108 53,070 325,069 Net income $ 310,178 $ 86,589 $ 530,373 Earnings per common and common equivalent share $2.61 $0.73 $4.33 Common and common equivalent shares used in the calculations of earnings per share 118,735 119,125 122,490 Required:

. Prepare common size income statements for horizontal analysis.

. Explain why net income decreased in 2008 and increased in 2009.

Exercise