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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

  1. 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 $995,600 $760,000
    Cost of goods sold 851,400 660,000
    Gross profit $144,200 $100,000
    Selling expenses $43,560 $36,000
    Administrative expenses 38,700 30,000
    Total operating expenses $82,260 $66,000
    Income before income tax $61,940 $34,000
    Income tax expenses 24,800 13,600
    Net income $37,140 $20,400

    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 $995,600 $760,000 $ %
    Cost of goods sold 851,400 660,000 %
    Gross profit $144,200 $100,000 $ %
    Selling expenses $43,560 $36,000 $ %
    Administrative expenses 38,700 30,000 %
    Total operating expenses $82,260 $66,000 $ %
    Income before income tax $61,940 $34,000 $ %
    Income tax expense 24,800 13,600 %
    Net income $37,140 $20,400 $ %

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