1. Question Content Area

   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	$651,900			$530,000
   Cost of merchandise sold	552,000			460,000
   Gross profit	$99,900			$70,000
   Selling expenses	$28,250			$25,000
   Administrative expenses	25,410			21,000
   Total operating expenses	$53,660			$46,000
   Income before income tax expense	$46,240			$24,000
   Income tax expenses	18,500			9,600
   Net income	$27,740			$14,400

   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.

   Winthrop Company Comparative Income Statement For the Years Ended December 31

   	Current year Amount	Previous year Amount	Increase (Decrease) Amount	Increase (Decrease) Percent
   Sales	$651,900	$530,000	$fill in the blank bf6c40f76040004_1	fill in the blank bf6c40f76040004_2%
   Cost of merchandise sold	552,000	460,000	fill in the blank bf6c40f76040004_3	fill in the blank bf6c40f76040004_4%
   Gross profit	$99,900	$70,000	$fill in the blank bf6c40f76040004_5	fill in the blank bf6c40f76040004_6%
   Selling expenses	$28,250	$25,000	$fill in the blank bf6c40f76040004_7	fill in the blank bf6c40f76040004_8%
   Administrative expenses	25,410	21,000	fill in the blank bf6c40f76040004_9	fill in the blank bf6c40f76040004_10%
   Total operating expenses	$53,660	$46,000	$fill in the blank bf6c40f76040004_11	fill in the blank bf6c40f76040004_12%
   Income before income tax expense	$46,240	$24,000	$fill in the blank bf6c40f76040004_13	fill in the blank bf6c40f76040004_14%
   Income tax expense	18,500	9,600	fill in the blank bf6c40f76040004_15	fill in the blank bf6c40f76040004_16%
   Net income	$27,740	$14,400	$fill in the blank bf6c40f76040004_17	fill in the blank bf6c40f76040004_18%

   Question Content Area

   b. The net income for Winthrop Company increased between years. This increase was the combined result of an (increase/ decrease) in sales and (higher/lower) percentage in cost of merchandise sold. The cost of merchandise sold increased at a (slower/faster) rate than the increase in sales, thus causing the percentage increase in gross profit to be (greater/less) than the percentage increase in 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 Previous Year Sales $651,900 $530,000 Cost of merchandise sold 552,000 460,000 Gross profit $99,900 $70,000 $28,250 $25,000 Selling expenses Administrative expenses 25,410 21,000 Total operating expenses $53,660 $46,000 Income before income tax expense $46,240 $24,000 Income tax expenses 18,500 9,600 Net income $27,740 $14,400 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 Previous Increase Increase year year (Decrease) (Decrease) Amount Amount Amount Percent Sales $651,900 $530,000 $ % Cost of merchandise sold 552,000 460,000 1% Gross profit $99,900 $70,000 % Selling expenses $28,250 $25,000 % Administrative expenses 25,410 21,000 % Total operating expenses $53,660 $46,000 % Income before income tax expense $46,240 $24,000 % Income tax expense 18,500 9,600 % Net income $27,740 $14,400 % b. The net income for Winthrop Company increased between years. This increase was the combined result of an in cost of merchandise sold. The cost of merchandise sold increased at a increase in gross profit to be than the percentage increase in sales. in sales and percentage rate than the increase in sales, thus causing the percentage