Horizontal Analysis of the Income Statement
Income statement data for Winthrop Company for two recent yearsended December 31, are as follows:
| CurrentYear | | PreviousYear |
| Sales | $701,100 | | | $570,000 | |
| Cost of goods sold | 605,000 | | | 500,000 | |
| Gross profit | $96,100 | | | $70,000 | |
| Selling expenses | $27,120 | | | $24,000 | |
| Administrative expenses | 24,200 | | | 20,000 | |
| Total operating expenses | $51,320 | | | $44,000 | |
| Income before income tax | $44,780 | | | $26,000 | |
| Income tax expenses | 17,900 | | | 10,400 | |
| Net income | $26,880 | | | $15,600 | |
a. Prepare a comparative income statement withhorizontal analysis, indicating the increase (decrease) for thecurrent 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 | $701,100 | $570,000 | $ | % |
| Cost of goods sold | 605,000 | 500,000 | | % |
| Gross profit | $96,100 | $70,000 | $ | % |
| Selling expenses | $27,120 | $24,000 | $ | % |
| Administrative expenses | 24,200 | 20,000 | | % |
| Total operating expenses | $51,320 | $44,000 | $ | % |
| Income before income tax | $44,780 | $26,000 | $ | % |
| Income tax expense | 17,900 | 10,400 | | % |
| Net income | $26,880 | $15,600 | $ | % |
b. The net income for Winthrop Companyincreased between years. This increase was the combined result ofan in salesand percentage in cost of goods sold.The cost of goods sold increased at a rate thanthe increase in sales, thus causing the percentage increase ingross profit to be than the percentage increase insales.
