chapter 16

Horizontal analysis of income statement

For 20Y2, Macklin Inc. reported a significant decrease in net income. At the end of the year, John Mayer, the president, is presented with the following condensed comparative income statement:

Macklin Inc. Comparative Income Statement For the Years Ended December 31, 20Y2 and 20Y1

Line Item Description	20Y2	20Y1
Sales	$449,644	$389,000
Cost of goods sold	(330,000)	(250,000)
Gross profit	$119,644	$139,000
Selling expenses	$(46,200)	$(33,000)
Administrative expenses	(27,050)	(21,000)
Total operating expenses	$(73,250)	$(54,000)
Operating income	$46,394	$85,000
Other revenue	1,978	1,600
Income before income tax expense	$48,372	$86,600
Income tax expense	(13,500)	(26,000)
Net income	$34,872	$60,600

Required:

Question Content Area

1. Prepare a comparative income statement with horizontal analysis for the two-year period, using 20Y1 as the base year. Use the minus sign to indicate a decrease in the "Increase/(Decrease)" columns. If required, round percentages to one decimal place.

Macklin Inc. Comparative Income Statement For the Years Ended December 31, 20Y2 and 20Y1

Line Item Description	20Y2	20Y1	Increase/ (Decrease) Amount	Increase/ (Decrease) Percent
Sales	$449,644	$389,000	$Sales	Sales%
Cost of goods sold	(330,000)	(250,000)	Cost of goods sold	Cost of goods sold%
Gross profit	$119,644	$139,000	$Gross profit	Gross profit%
Selling expenses	$(46,200)	$(33,000)	$Selling expenses	Selling expenses%
Administrative expenses	(27,050)	(21,000)	Administrative expenses	Administrative expenses%
Total operating expenses	$(73,250)	$(54,000)	$Total operating expenses	Total operating expenses%
Operating income	$46,394	$85,000	$Operating income	Operating income%
Other revenue	1,978	1,600	Other revenue	Other revenue%
Income before income tax expense	$48,372	$86,600	$Income before income tax expense	Income before income tax expense%
Income tax expense	(13,500)	(26,000)	Income tax expense	Income tax expense%
Net income	$34,872	$60,600	$Net income	Net income%