Question
Income statement data for Winthrop Company for two recent years ended December 31, are as follows: Current Year Previous Year Sales $884,400 $670,000 Cost of
Income statement data for Winthrop Company for two recent years ended December 31, are as follows:
Current Year | Previous Year | ||||
Sales | $884,400 | $670,000 | |||
Cost of goods sold | 748,200 | 580,000 | |||
Gross profit | $136,200 | $90,000 | |||
Selling expenses | $41,480 | $34,000 | |||
Administrative expenses | 37,700 | 29,000 | |||
Total operating expenses | $79,180 | $63,000 | |||
Income before income tax | $57,020 | $27,000 | |||
Income tax expenses | 22,800 | 10,800 | |||
Net income | $34,220 | $16,200 |
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 | $884,400 | $670,000 | $ | % |
Cost of goods sold | 748,200 | 580,000 | % | |
Gross profit | $136,200 | $90,000 | $ | % |
Selling expenses | 41,480 | 34,000 | % | |
Administrative expenses | 37,700 | 29,000 | % | |
Total operating expenses | $79,180 | $63,000 | $ | % |
Income before income tax | $57,020 | $27,000 | $ | % |
Income tax expense | 22,800 | 10,800 | % | |
Net income | $34,220 | $16,200 | $ | % |
b. The net income for Winthrop Company increased by 111.2% between years. This increase was the combined result of an in sales of 32% 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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