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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 Sales
Horizontal Analysis of the Income Statement Income statement data for Winthrop Company for two recent years ended December 31 are as follows: Current Year Sales $883,200 Previous Year $690,000 590,000 Cost of merchandise sold 737,500 $145,700 $100,000 $36,000 $42,480 39,060 31,000 Gross profit Selling expenses Administrative expenses Total operating expenses Income before income tax expense Income tax expenses $81,540 $67,000 $64,160 $33,000 25,700 13,200 Net income $38,460 $19,800 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 Winthrop Company Comparative Income Statement For the Years Ended December 31 Current Previous Increase Increase year year (Decrease) (Decrease) Amount Amount Amount Percent Sales $883,200 $690,000 $ % Cost of merchandise sold 737,500 590,000 % $145,700 $100,000 % Gross profit Selling expenses Administrative expenses $42,480 $36,000 $ % 39,060 31,000 % $67,000 % $33,000 % Total operating expenses $81,540 Income before income tax expense $64,160 Income tax expense 25,700 Net income $38,460 13,200 % $19,800 $ % in sales b. The net income for Winthrop Company increased between years. This increase was the combined result of an and percentage in cost of merchandise sold. The cost of merchandise sold increased at a rate than the increase in sales, thus causing the percentage increase in gross profit to be percentage increase in sales. than the
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