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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

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 $550,000 $440,000
Cost of goods sold 467,400 380,000
Gross profit $82,600 $60,000
Selling expenses $24,150 $21,000
Administrative expenses 20,910 17,000
Total operating expenses $45,060 $38,000
Income before income tax $37,540 $22,000
Income tax expenses 15,000 8,800
Net income $22,540 $13,200

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 year Amount Previous year Amount Increase (Decrease) Amount Increase (Decrease) Percent
Sales $550,000 $440,000 $ %
Cost of goods sold 467,400 380,000 %
Gross profit $82,600 $60,000 $ %
Selling expenses 24,150 21,000 %
Administrative expenses 20,910 17,000 %
Total operating expenses $45,060 $38,000 $ %
Income before income tax $37,540 $22,000 $ %
Income tax expense 15,000 8,800 %
Net income $22,540 $13,200 $ %

b. The net income for Winthrop Company increased by 70.8% between years. This increase was the combined result of an in sales of 25% and percentage in cost of goods sold. The cost of goods sold increased at a rate than the increase in sales, thus causing the percentage increase in gross profit to be than the percentage increase in sales.

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