Question
For 20Y2, McDade Company reported a decline in net income. At the end of the year, T. Burrows, the president, is presented with the following
For 20Y2, McDade Company reported a decline in net income. At the end of the year, T. Burrows, the president, is presented with the following condensed comparative income statement:
| McDade Company |
| Comparative Income Statement |
| For the Years Ended December 31, 20Y2 and 20Y1 |
| 1 |
| 20Y2 | 20Y1 |
| 2 | Sales | $7,392,000.00 | $6,600,000.00 |
| 3 | Cost of goods sold | 2,728,000.00 | 2,200,000.00 |
| 4 | Gross profit | $4,664,000.00 | $4,400,000.00 |
| 5 | Selling expenses | $1,257,300.00 | $990,000.00 |
| 6 | Administrative expenses | 742,950.00 | 585,000.00 |
| 7 | Total operating expenses | $2,000,250.00 | $1,575,000.00 |
| 8 | Income from operations | $2,663,750.00 | $2,825,000.00 |
| 9 | Other income | 143,000.00 | 130,000.00 |
| 10 | Income before income tax | $2,806,750.00 | $2,955,000.00 |
| 11 | Income tax expense | 70,200.00 | 60,000.00 |
| 12 | Net income | $2,736,550.00 | $2,895,000.00 |
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 an amount or percent decrease. If required, round percentages to one decimal place.
| McDade Company |
| Comparative Income Statement |
| For the Years Ended December 31, 20Y2 and 20Y1 |
| 1 |
|
|
| Increase (Decrease) | Increase (Decrease) |
| 2 |
| 20Y2 | 20Y1 | Amount | Percent |
| 3 | Sales | $7,392,000.00 | $6,600,000.00 |
|
|
| 4 | Cost of goods sold | 2,728,000.00 | 2,200,000.00 |
|
|
| 5 | Gross profit | $4,664,000.00 | $4,400,000.00 |
|
|
| 6 | Selling expenses | $1,257,300.00 | $990,000.00 |
|
|
| 7 | Administrative expenses | 742,950.00 | 585,000.00 |
|
|
| 8 | Total operating expenses | $2,000,250.00 | $1,575,000.00 |
|
|
| 9 | Income from operations | $2,663,750.00 | $2,825,000.00 |
|
|
| 10 | Other income | 143,000.00 | 130,000.00 |
|
|
| 11 | Income before income tax | $2,806,750.00 | $2,955,000.00 |
|
|
| 12 | Income tax expense | 70,200.00 | 60,000.00 |
|
|
| 13 | Net income | $2,736,550.00 | $2,895,000.00 |
|
|
| 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 an amount or percent decrease. If required, round percentages to one decimal place. |
| 2. | To the extent the data permit, comment on the significant relationships revealed by the horizontal analysis prepared in (1). |
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