17-3 17-05

Horizontal Analysis of the Income Statement

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

	Current Year			Previous Year
Sales	$435,600			$360,000
Cost of goods sold	354,000			300,000
Gross profit	$81,600			$60,000
Selling expenses	$22,200			$20,000
Administrative expenses	20,230			17,000
Total operating expenses	$42,430			$37,000
Income before income tax	$39,170			$23,000
Income tax expenses	15,700			9,200
Net income	$23,470			$13,800

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.

Winthrop Company
Comparative Income Statement
For the Years Ended December 31
	Current year Amount	Previous year Amount	Increase (Decrease) Amount	Increase (Decrease) Percent
Sales	$435,600	$360,000	$	%
Cost of goods sold	354,000	300,000		%
Gross profit	$81,600	$60,000	$	%
Selling expenses	22,200	20,000		%
Administrative expenses	20,230	17,000		%
Total operating expenses	$42,430	$37,000	$	%
Income before income tax	$39,170	$23,000	$	%
Income tax expense	15,700	9,200		%
Net income	$23,470	$13,800	$	%

b. The net income for Winthrop Company increased by 70.1% between years. This increase was the combined result of an

in sales of 21% 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.