For 2007, Pet Care, Inc., reported its most significant increase in net income in years. At the end of the year, Jeff Newton, the president, is presented with the condensed comparative income statement on the following page.

Instructions

1. Prepare a comparative income statement with horizontal analysis for the two-year period, using 2006 as the base year. Round to two decimal places.

2. To the extent the data permit, comment on the significant relationships revealed by the horizontal analysis prepared in(1).

Pet Care, Inc. Comparative Income Statement For the Yeas Ended December 31, 2007 and 2006 2007 2006 Sales Sales returns and allowances Net sales Cost of goods sold Gross profit Selling expenses Administrative expenses Total operating expenses Income from operations Other income Income before income tax Income tax expense Net income $76,200 $61,000 1,000 $75,000 $60,000 35,000 S33,000 $25,000 $13,800 12,000 8,000 $22,800 $20,000 $10,200 5,000 500 10,700 5,500 1,200 8,300 4,300 1,200 42,000 9,000 500 2,400