17.6

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 $478,800 $380,000 Cost of merchandise sold 393,600 320,000 Gross profit $85,200 560,000 Seling expenses $24,360 $21,000 Administrative expenses 22,320 18,000 Total operating expenses $46,680 $39,000 Income before income tax expense $38,520 $21,000 Income tax expenses 15,400 8,400 Net Income $23,120 $12,600 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 Previous Increase Increase Year year (Decrease) (Decrease) Amount Amount Amount Percent Sales $478,800 $380,000 Cost of merchandise sold 393,600 320,000 Net Income $23,120 $12,600 2. Prepare a comparative Income statement with horizontal analysis, indicating the increase (decreasa) for the current your 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 Previous Increase Increase Year Year (Decrease) (Decrease) Amount Amount Amount Percent Sales $478,800 $380,000 Cost of merchandise sold 393,600 320,000 Gross profit $85,200 $60,000 % Selling expenses $24,360 $21,000 Administrative expenses 22.320 18,000 Total operating expenses $46,680 $39,000 Income before Income tax expense $38,520 $21,000 Income tax expense 15,400 8,400 Net income 523,120 $12,600 b. The net income for Winthrop Company increased between years. This increase was the combined result of an in sales and percentage in cost of merchandise sold. The cost of merchandise sold increased at a increase in sales, thus causing the percentage increase in gross profit to be than the percentage increase in sales rate than the