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Horizontal Analysis of the Income Statement Income statement data for Winthrop Company for two recent years ended December 31 are as follows: Current Year

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Horizontal Analysis of the Income Statement Income statement data for Winthrop Company for two recent years ended December 31 are as follows: Current Year Previous Year Sales $504,000 $420,000 Cost of merchandise sold Gross profit Selling expenses 424,800 360,000 $79,200 $60,000 $22,000 $20,000 Administrative expenses 20,060 17,000 Total operating expenses $42,060 $37,000 Income before income tax expense $37,140 $23,000 Income tax expenses Net income 14,900. $22,240 9,200 $13,800 a. Prepare a comparative income statement with horizontal analysis, indicating the increase (decrease) for the current year when compared with the previous year. If required, round to one decimal place. Winthrop Company Comparative Income Statement For the Years Ended December 31 Current Previous Increase Increase year Sales year (Decrease) (Decrease) Amount Amount Amount Percent $504,000 $420,000 % Cost of merchandise sold 424,800 360,000 % Gross profit $79,200 $60,000 % Selling expenses $22,000 $20,000 $ % Administrative expenses 20,060 17,000 % Total operating expenses $42,060 $37,000 % Income before income tax expense Income tax expense Net income $37,140 $23,000 14,900 % 9,200 % $22,240 $13,800 % b. The net income for Winthrop Company increased between years. This increase was the combined result of an increase percentage increase in gross profit to be than the percentage increase in sales. in sales and percentage in cost of merchandise sold. The cost of merchandise sold increased at al rate than the increase in sales, thus causing the

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