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	$897,900			$730,000
Cost of merchandise sold	750,200			620,000
Gross profit	$147,700			$110,000
Selling expenses	$41,810			$37,000
Administrative expenses	37,510			31,000
Total operating expenses	$79,320			$68,000
Income before income tax expense	$68,380			$42,000
Income tax expenses	27,400			16,800
Net income	$40,980			$25,200

Question Content Area

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.

	Current year Amount	Previous year Amount	Increase (Decrease) Amount	Increase (Decrease) Percent
Sales	$897,900	$730,000	$fill in the blank e5b336001f94fc6_1	fill in the blank e5b336001f94fc6_2%
Cost of merchandise sold	750,200	620,000	fill in the blank e5b336001f94fc6_3	fill in the blank e5b336001f94fc6_4%
Gross profit	$147,700	$110,000	$fill in the blank e5b336001f94fc6_5	fill in the blank e5b336001f94fc6_6%
Selling expenses	$41,810	$37,000	$fill in the blank e5b336001f94fc6_7	fill in the blank e5b336001f94fc6_8%
Administrative expenses	37,510	31,000	fill in the blank e5b336001f94fc6_9	fill in the blank e5b336001f94fc6_10%
Total operating expenses	$79,320	$68,000	$fill in the blank e5b336001f94fc6_11	fill in the blank e5b336001f94fc6_12%
Income before income tax expense	$68,380	$42,000	$fill in the blank e5b336001f94fc6_13	fill in the blank e5b336001f94fc6_14%
Income tax expense	27,400	16,800	fill in the blank e5b336001f94fc6_15	fill in the blank e5b336001f94fc6_16%
Net income	$40,980	$25,200	$fill in the blank e5b336001f94fc6_17	fill in the blank e5b336001f94fc6_18%

Question Content Area

b. The net income for Winthrop Company increased between years. This increase was the combined result of an

increase or decrease

in sales and

higher or lower

percentage

increase or decrease

in cost of merchandise sold. The cost of merchandise sold increased at a

slowerfaster

rate than the increase in sales, thus causing the percentage increase in gross profit to be

greaterless

than the percentage increase in sales.