Horizontal Analysis of Income Statement

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
	20Y2		20Y1
Sales	$585,783		$503,000
Cost of merchandise sold	428,800		320,000
Gross profit	$156,983		$183,000
Selling expenses	$59,850		$42,000
Administrative expenses	35,260		27,000
Total operating expenses	$95,110		$69,000
Income from operations	$61,873		$114,000
Other revenue	2,669		2,100
Income before income tax expense	$64,542		$116,100
Income tax expense	18,100		34,800
Net income	$46,442		$81,300

Required:

Question Content Area

1. Prepare a comparative income statement with horizontal analysis for the two-year period, using 20Y1 as the base year. Round percentages to one decimal place. Use the minus sign to indicate a decrease in the "Difference" columns.

McDade Company Comparative Income Statement For the Years Ended December 31, 20Y2 and 20Y1

	20Y2	20Y1	Difference - Amount	Difference - Percent
Sales	$585,783	$503,000	$fill in the blank 0cced2ff3fd7031_1	fill in the blank 0cced2ff3fd7031_2%
Cost of merchandise sold	428,800	320,000	fill in the blank 0cced2ff3fd7031_3	fill in the blank 0cced2ff3fd7031_4%
Gross profit	$156,983	$183,000	$fill in the blank 0cced2ff3fd7031_5	fill in the blank 0cced2ff3fd7031_6%
Selling expenses	$59,850	$42,000	$fill in the blank 0cced2ff3fd7031_7	fill in the blank 0cced2ff3fd7031_8%
Administrative expenses	35,260	27,000	fill in the blank 0cced2ff3fd7031_9	fill in the blank 0cced2ff3fd7031_10%
Total operating expenses	$95,110	$69,000	$fill in the blank 0cced2ff3fd7031_11	fill in the blank 0cced2ff3fd7031_12%
Income from operations	$61,873	$114,000	$fill in the blank 0cced2ff3fd7031_13	fill in the blank 0cced2ff3fd7031_14%
Other revenue	2,669	2,100	fill in the blank 0cced2ff3fd7031_15	fill in the blank 0cced2ff3fd7031_16%
Income before income tax expense	$64,542	$116,100	$fill in the blank 0cced2ff3fd7031_17	fill in the blank 0cced2ff3fd7031_18%
Income tax expense	18,100	34,800	fill in the blank 0cced2ff3fd7031_19	fill in the blank 0cced2ff3fd7031_20%
Net income	$46,442	$81,300	$fill in the blank 0cced2ff3fd7031_21	fill in the blank 0cced2ff3fd7031_22%

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2. Net income has

increaseddecreased

from 20Y1 to 20Y2. Sales have

increaseddecreased

; however, the cost of merchandise sold has

increaseddecreased

, causing the gross profit to

increasedecrease

.