Question 1 The income statements for the first three years of operations of Carol's Music Ltd....
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Question 1 The income statements for the first three years of operations of Carol's Music Ltd. are provided below: 2022 $ 143,750 68,350 75,400 2020 $ 100,000 46,000 54,000 2021 $ 115,000 53,820 Revenue. Cost of goods sol . Gross profit. Expenses Salaries. . Depreciation expense. . Other operating expenses.. Total operating expenses.. Profit from operations. 61,180 19,000 22,000 15,080 15,000 13,000 4,000 27,360 68,360 22,800 52,880 20,000 37,000 Interest expense... Income tax expense Profit . 7,040 (5,000) (600) $ 1,440 8,300 (3,000) (980) $4,320 17,000 (1,000) (2,000) $ 14,000 Instructions a) Is Carol's gross profit improving over the three years or not? Use horizontal analysis, with 2020 as the base year, to support your answer. b) Provide one explanation for the decline in income from operations other than changes in gross profit. Support your answer using vertical analysis. c) Although profit is decreasing, Carol has not been concerned because her cash flows have increased from year to year. Using the information available in the income statements, explain why this is so. Question 1 The income statements for the first three years of operations of Carol's Music Ltd. are provided below: 2022 $ 143,750 68,350 75,400 2020 $ 100,000 46,000 54,000 2021 $ 115,000 53,820 Revenue. Cost of goods sol . Gross profit. Expenses Salaries. . Depreciation expense. . Other operating expenses.. Total operating expenses.. Profit from operations. 61,180 19,000 22,000 15,080 15,000 13,000 4,000 27,360 68,360 22,800 52,880 20,000 37,000 Interest expense... Income tax expense Profit . 7,040 (5,000) (600) $ 1,440 8,300 (3,000) (980) $4,320 17,000 (1,000) (2,000) $ 14,000 Instructions a) Is Carol's gross profit improving over the three years or not? Use horizontal analysis, with 2020 as the base year, to support your answer. b) Provide one explanation for the decline in income from operations other than changes in gross profit. Support your answer using vertical analysis. c) Although profit is decreasing, Carol has not been concerned because her cash flows have increased from year to year. Using the information available in the income statements, explain why this is so.
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Related Book For
Intermediate Accounting
ISBN: 978-0132162302
1st edition
Authors: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella
Posted Date:
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