Horizontal Analysis for Income Statement

For 20Y3, Greyhound Technology Company reported its most significant decline in net income in years. At the end of the year, Duane Vogel, the president, is presented with the following condensed comparative income statement:

GREYHOUND TECHNOLOGY COMPANY Comparative Income Statement For the Years Ended December 31, 20Y3 and 20Y2
	20Y3		20Y2
Sales	$ 547,575		$ 465,000
Cost of goods sold	(394,400)		(290,000)
Gross profit	$ 153,175		$ 175,000
Selling expenses	$ (56,550)		$ (39,000)
Administrative expenses	(33,100)		(25,000)
Total operating expenses	$ (89,650)		$ (64,000)
Operating income	$ 63,525		$ 111,000
Other revenue	2,450		2,000
Income before income tax	$ 65,975		$ 113,000
Income tax expense	(18,500)		(33,900)
Net income	$ 47,475		$ 79,100

Instructions:

Question Content Area

1. Prepare a comparative income statement with horizontal analysis for the two-year period, using 20Y2 as the base year. Enter decreases as negative amounts and negative percentages. Round percentage changes to one decimal place.

	20Y3	20Y2	Increase (Decrease) Amount	Increase (Decrease) Percent
Sales	$547,575	$465,000	$fill in the blank 71ef80f94f9205e_1	fill in the blank 71ef80f94f9205e_2%
Cost of goods sold	(394,400)	(290,000)	fill in the blank 71ef80f94f9205e_3	fill in the blank 71ef80f94f9205e_4%
Gross profit	$153,175	$175,000	$fill in the blank 71ef80f94f9205e_5	fill in the blank 71ef80f94f9205e_6%
Selling expenses	$(56,550)	$(39,000)	$fill in the blank 71ef80f94f9205e_7	fill in the blank 71ef80f94f9205e_8%
Administrative expenses	(33,100)	(25,000)	fill in the blank 71ef80f94f9205e_9	fill in the blank 71ef80f94f9205e_10%
Total operating expenses	$(89,650)	$(64,000)	$fill in the blank 71ef80f94f9205e_11	fill in the blank 71ef80f94f9205e_12%
Operating income	$63,525	$111,000	$fill in the blank 71ef80f94f9205e_13	fill in the blank 71ef80f94f9205e_14%
Other revenue	2,450	2,000	fill in the blank 71ef80f94f9205e_15	fill in the blank 71ef80f94f9205e_16%
Income before income tax	$65,975	$113,000	$fill in the blank 71ef80f94f9205e_17	fill in the blank 71ef80f94f9205e_18%
Income tax expense	(18,500)	(33,900)	fill in the blank 71ef80f94f9205e_19	fill in the blank 71ef80f94f9205e_20%
Net income	$47,475	$79,100	$fill in the blank 71ef80f94f9205e_21	fill in the blank 71ef80f94f9205e_22%

Question Content Area

2. Based on the horizontal analysis prepared in 1 which of the following statements is correct? a. Net income declined from 20Y2 to 20Y3. b. Sales increased, but the cost of goods also increased causing gross profit to decline. c. Other revenues decreased slightly and income tax expense increased. d. Over all there is decline in net income.

a and ba and cc and dAll of the above