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Horizontal analysis of income statement For 2012, McDade Company reported a decline in net income. At the end of the year, T. Burrows, the
Horizontal analysis of income statement For 2012, 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 201 Sales 2012 $16,800,000 2011 $15,000,000 Cost of goods sold (11,500,000) (10,000,000) Gross profit $5,300,000 $5,000,000 Selling expenses $(1,770,000) $(1,500,000) Administrative expenses (1,220,000) (1,000,000) Total operating expenses $(2,990,000) $(2,500,000) Operating income $2,310,000 $2,500,000 Other revenue 256,950 225,000 Income before income tax expense $2,566,950 $2,725,000 Income tax expense (1,413,000) (1,500,000) Net income $1,153,950 $1,225,000 1. Prepare a comparative income statement with horizontal analysis for the two-year period, using 2011 as the base year, Round percentages to one decimal place. For those boxes in which you must enter subtracted or negative numbers use a minus sign McDade Company Comparative Income Statement For the Years Ended December 31, 2012 and 20Y1 Increase/(Decrease) Increase/(Decrease) Line Item Description Sales Cost of goods sold Gross profit 2012 2011 Amount Percent Selling expenses Administrative expenses Total operating expenses Operating Income Other revenue Income before income tax expense Income tax expense Net income 2. To the extent the data permit, comment on the significant relationships revealed by the horizontal analysis prepared in (1) Net income has from 2011 to 2012 Sales have at a pace than sales. In addition, total operating expenses have i higher than the increase in sales have caused the net income to however, the cost of goods sold has) at a faster rate than sales causing the gross profit to increase in costs and expenses that are
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